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Charitable trust

A charitable trust holds property for charitable purposes rather than for named private beneficiaries.

Definition and use

The Cayman Islands Trusts Act describes a charitable trust as a trust whose object is charitable, while the Hague Convention defines trusts more generally by assets controlled by a trustee for beneficiaries or a specified purpose.[1][4]

Purpose and public benefit

The Cayman statute states that a trust does not lose qualification as charitable solely because its purposes may benefit the public or a section of the public outside the Islands.[4]

The statute also distinguishes charitable purposes from non-charitable purposes in its special trust provisions. There, purposes may be of any number or kind if they are lawful and not contrary to public policy.[4]

Administration and changes of purpose

The Hague Convention describes a trust's general legal structure: a trustee holds title, manages or disposes of assets under the trust terms, and is accountable for those duties. It also identifies administration, trustee powers, asset distribution and accounting as matters governed by the applicable trust law.[1]

Jersey law permits a court, on an application by a trustee or the Attorney General, to redirect property held for a charitable purpose in specified circumstances. These include when the purpose has been fulfilled, cannot be carried out, or has ceased to be charitable. The court's substituted purpose must be consistent with the settlor's original intention.[3]

The Jersey provision also allows an application to approve an arrangement that varies or revokes purposes or changes trustee management powers, subject to the statutory conditions. It expressly applies to property held for charitable or non-charitable purposes.[3]

The Internal Revenue Service regulation describes an ordinary trust as an arrangement in which trustees hold title to property to protect or conserve it for beneficiaries. It separately describes business trusts, which may be classified as business entities for Internal Revenue Code purposes, depending on their character.[2]

The IRS regulation's categories are federal tax classifications; the foreign statutes' references to charitable purposes address trust objects under their respective legislation. The tax-exempt status of a charitable trust turns on separate Internal Revenue Code rules for tax-exempt organizations.[2][4]

Questions and answers

Does public benefit outside the Cayman Islands disqualify a charitable trust?

The Cayman Islands Trusts Act says a trust does not fail to qualify as charitable only because its purposes may benefit the public or a section of the public outside the Islands.[4]

What happens if a charitable purpose cannot continue under Jersey law?

In specified circumstances, a trustee or the Attorney General may apply for an order directing the property to another charitable purpose. The replacement purpose is to accord with the settlor's original intention.[3]

How does the Hague Convention describe a trust?

It describes assets placed under a trustee's control for a beneficiary or a specified purpose. The trustee holds title and has duties to manage or dispose of those assets under the trust terms and applicable legal duties.[1]

Does the IRS regulation specifically define charitable trusts?

The regulation discusses ordinary trusts, business trusts and other categories, but does not define charitable trusts as a category. Its ordinary trust description focuses on trustees holding property to protect or conserve it for beneficiaries.[2]

What is a non-charitable purpose trust in the Bermuda Act?

The Act defines a purpose trust as a trust created for one or more non-charitable purposes that satisfy stated conditions. Those purposes must be sufficiently certain to carry out, lawful and consistent with public policy.[5]

  • Purpose trust: A purpose trust holds property for purposes, not for beneficiaries, and relies on an enforcer. Bermuda and Jersey define it differently, as does Cayman.
  • Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
  • Discretionary trust: A discretionary trust leaves distribution decisions to the trustee. It differs from a fixed interest trust and from a protective trust in who controls payments.
Sources and data notes
  1. HCCH, 1985 Hague Trusts Convention. https://www.hcch.net/en/instruments/conventions/full-text/?cid=59. Retrieved .
  2. Internal Revenue Service, 26 CFR 301.7701-4. https://www.ecfr.gov/current/title-26/section-301.7701-4. Retrieved .
  3. Jersey Legal Information Board, Trusts (Jersey) Law 1984. https://jerseylaw.je/laws/current/l_11_1984. Retrieved .
  4. Cayman Islands Legislature, Trusts Act (2021 Revision). https://legislation.gov.ky/cms/images/LEGISLATION/PRINCIPAL/1967/1967-0006/1967-0006_2021%20Revision.pdf. Retrieved .
  5. Legislature of Bermuda, Trusts (Special Provisions) Act 1989. https://bermuda.fm/legislation/1591. Retrieved .

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