Patagonia chooses a purpose trust to help them save the planet

When Yvon Chouinard, founder of Patagonia, restructured the company to a purpose trust in 2022, it shone a light on this form of corporate ownership.

Patagonia, whose mission statement is: “We’re in business to save our home planet”, is believed to have donated substantial amounts since making the switch.

A purpose trust is a unique type of trust created which has no beneficiaries but instead exists
for advancing a non-charitable, specific purpose.

“A purpose trust is a unique type of trust created which has no beneficiaries but instead exists
for advancing a non-charitable, specific purpose.”

The Abacus Trust Group’s client services team

Typically, in a trust, there are three key roles:

1. Settlor – The person who creates the trust and places assets in it.
2. Trustee – The person or organisation that manages the trust assets.
3. Beneficiaries – The people or entities benefitting from the assets held in trust.

However, in a purpose trust, there are no beneficiaries. Instead, it is established with a specific goal, which could range from maintaining a family heirloom to supporting a business or project.

Characteristics of a purpose trust

1. Non-charitable: Unlike a charitable trust, which exists to support causes like education, health, or poverty relief, a purpose trust is used for non-charitable purposes. The purpose must be specific, legally valid, and enforceable.
2. No named beneficiaries: Instead of individuals benefiting from the trust, it is directed toward fulfilling a specific objective. For example, it might be set up to maintain a piece of art or hold shares in a company.
3. Enforcer: Without beneficiaries or a protector to monitor trustee activity, purpose trusts require an enforcer - a person or entity whose job is to ensure the trustee acts in accordance with the trust’s purpose.

Examples of purpose trusts

Here are some scenarios where purpose trusts have been used:

1. Business: A family might set up a purpose trust to hold shares in a family business. The trust does not benefit any one family member directly, but its goal is to ensure the continuity and proper management of the business.
2. Maintenance: Purpose trusts are often used to preserve unique or valuable assets. For example, a wealthy individual may want to maintain a family vacation home, so it remains available for use by future generations but cannot be sold or claimed by any one person.
3. Corporate: Corporations can use purpose trusts to hold certain assets, such as intellectual property or a fund, to ensure they are used for very specific goals, like employee benefit plans, corporate social responsibility programmes or pension schemes.
4. Specific goals: A person might set up a purpose trust for a particular personal reason, like maintaining a family tradition such as funding an annual family reunion or ensuring their pet is cared for after they pass away.
5. Special projects: A purpose trust may appeal to companies or individuals involved in specialised, high-value projects. This may include maintaining a yacht, private jet or assets with significant maintenance costs or regulatory obligations.

Legal considerations

The Isle of Man the Purpose Trust Act 1996 makes provision for the creation of purpose trusts.

 
Overview

1. The Settlor places assets (such as money, shares, or property) into the trust.
2. The Trustee takes control of those assets but manages them according to the terms of the trust. Instead of distributing the assets to beneficiaries, the trustee ensures the assets are used to achieve the specific purpose outlined by the Settlor.
3. The Enforcer monitors the trustee to ensure they fulfil the trust’s objective and are managing the assets according to the trust’s rules.

Benefits

• Flexibility: Purpose trusts offer a lot of flexibility since they can be tailored to achieve very specific objectives, whether personal or business-related.
• Control: They give the Settlor a high degree of control over how assets are managed and ensure their intentions are followed long after they are gone.
• Asset protection: In some cases, assets in a purpose trust may be protected from creditors or legal claims, making it a valuable tool for estate and succession planning.

A purpose trust is a special type of trust created to fulfil a specific objective, rather than benefiting individuals directly. It is commonly used by individuals or businesses for specific long-term goals such as holding assets, preserving family property, or carrying out non-charitable activities. Its flexibility makes it a powerful tool for those who want to ensure a certain outcome, but it also requires careful planning and oversight to establish and manage.

No action should be taken on the basis of this note, nor should it be construed as amounting to tax, legal or VAT advice. Suitable, specific and professional advice should always be obtained in respect on any particular issue.