When a trust is created, the settlor determines how the funds held in trust are to be used. If the funds are earmarked for a designated purpose that cannot be achieved, however, the funds may hang in limbo indefinitely, just out of reach. This dilemma is aptly demonstrated by the National Fund, a trust established in the UK in 1928 for a very specific purpose – repaying the national debt. The money held in trust in the National Fund sat untouched for almost a century because the purpose for which the trust was created could not be achieved. 

The National Fund started with a donation of half a million pounds in late 1927 by an anonymous banker. In a note explaining the purpose of the gift, the donor stated:

… To repay the National Debt may be thought to be beyond the reach of individual effort, but as a beginning towards this end I am placing at your disposal, as Trustees for the Nation, some £500,000 as the nucleus of a fund to accumulate in your hands, and to be applied eventually to this object.

Over the years, others also contributed to the National Fund, with the last contribution occurring in 1982. Because of the way that the trust was drafted, the National Fund could only be accessed once there was enough money to discharge the national debt in its entirety, either alone or together with other funds. And while the National Fund grew to around £600 million from the original £500,000 gift, the Fund never grew anywhere near enough to achieve its designated purpose. In 2023 the National Fund would have covered less than one percent of the UK’s national debt, which sat at around £2.3 trillion. 

Since it was evident that the National Fund would never pay the national debt in full, in 2020 the Attorney General sought to apply the National Fund to instead reduce the national debt: see Attorney General v Zedra Fiduciary Services (UK) Ltd & Ors, [2020] EWHC 2988 (Ch). In response, descendants of the donor argued that the trust was invalid, and thereby subject to resulting trust, on two bases – 1) that the trust was subject to a condition precedent which was incapable of occurring, and 2) because the donor’s intended charitable purpose had failed for impossibility. The court dismissed both arguments, confirming that the National Fund was indeed a valid trust.  Notwithstanding the fact that the National Fund would not take effect until it was sufficient to discharge the national debt, Justice Zacaroli found that the donor intended the Fund to be an immediate and unconditional gift to charity. The court also found that the main purpose of the trust was not impossible from the outset, holding:

Where, at a particular point of time in the past, the likelihood of something happening depended on subsequent events, it cannot be said, in my judgment, that because those later events have rendered the thing happening impossible, it was therefore always impossible …

Since the National Fund was a valid trust but its purpose could not be achieved, the court determined that a further hearing was necessary to determine how the money should be used.  

At the next proceedings, held in 2022, the High Court found that the National Fund should be used for its originally intended purpose – reducing the national debt – even though it would only make a “miniscule dent in the overall volume of the national debt”: see HM Attorney General v Zedra Fiduciary Services, [2022] EWHC 102 (Ch). 

The trustee, Zedra Fiduciary Services, argued that the National Fund should instead be applied to a new charitable fund that could give grants and loans to existing charities, and appealed the High Court’s decision. However, the Court of Appeal upheld Justice Zacaroli’s decision, recognizing that the donor’s intention was not to “establish a permanent endowment fund for general charitable purposes”, and instead was to reduce the national debt: see Zedra Fiduciary Services (UK) Ltd. v. HM Attorney General, [2023] EWCA Civ 1332. The Court of Appeal’s decision essentially confirms that if a trust must be varied to take effect, the original spirit of the gift ought to be followed as closely as possible – it is not the court’s place to question the wisdom or effectiveness of a valid charitable gift.

For anyone thinking about creating a charitable trust, it is worthwhile to consider not only how the money ought to be spent, but also whether the purpose of the trust can actually be achieved. If the trust cannot take effect until after an improbable, but not impossible, event occurs, litigation may be the inevitable result, as was the case for the National Fund. 

Thank you for reading, and have a great day! 

Ian.