Non-Charitable Purpose Trusts

In 2022, Yvon Chouinard, the founder of Patagonia, raised eyebrows when he announced the creation of the Patagonia Purpose Trust and his family’s intent to transfer 100% of the company’s voting stock to the Trust. They also transferred 100% of the non-voting stock to a nonprofit organization dedicated to combating climate change and protecting undeveloped land.

Chouinard’s announcement was an introduction to purpose trusts for a majority of the public; however, purpose trusts have been used in some form for nearly a century. As the name implies, a purpose trust is structured with an intent to carry out a particular purpose rather than primarily for the benefit of individual beneficiaries or classes of beneficiaries.

The Restatement (First) of Trusts contained a section on trusts created for a specific non-charitable purpose, noting that an intended trust with no “definite or definitely ascertainable beneficiary” is not actually an enforceable trust (Restatement (First) of Trusts § 124 (1935)). Instead, it is considered an honorary trust, where a trustee of such trust would have the power, but no duty, to apply the property of the trust for the intended purpose.

As summarized in Richard C. Ausness’s article, “Non-Charitable Purpose Trusts: Past, Present and Future,” 51 Real Prop. Prob. & Tr. J. 2 (2016), honorary trusts were primarily used for (1) tombstone, grave, or monument maintenance, (2) performance for masses for the dead or other religious services, or (3) the care of animals.

Today, many states have enacted statutes to address the legitimacy of non-charitable purpose trusts and provide a framework for the administration of such trusts. In addition, as can be seen from the Patagonia example noted above, purpose trusts are now used in a variety of situations, including:

• Preserving a family business’s mission
• Holding voting shares in a private company
• Maintaining valuable collections, such as artwork, firearms, or automobiles
• Caring for animals (commonly known as pet trusts)
• Preserving unique assets or property

Purpose Trusts in Delaware

The statutory framework for purpose trusts in Delaware can be found in 12 Del. C. § 3556. Under this statute, a trust for a declared purpose that is not impossible of attainment is considered a valid trust notwithstanding (1) that the trust may not be deemed to be for a charitable purpose, and (2) that it lacks an identifiable beneficiary. 

As discussed in a previous article (cite to Delaware Trust Act 2025 article), Delaware’s Trust Act 2025 made several significant updates to various code sections pertaining to non-charitable purpose trusts. 

Under one update, the statute now contains language expressly stating that a person is not deemed to be a beneficiary of a purpose trust solely because that person receives a distribution from the trust in furtherance of the declared purpose. 

Individuals who receive distributions in furtherance of the trust’s purpose are not treated as beneficiaries solely by virtue of receiving those distributions and therefore generally do not possess the rights typically afforded trust beneficiaries. 

This helps avoid conflicts by clarifying that fiduciaries owe their duties to preserving the trust’s purpose rather than to those who receive distributions from the trust. It also means those individuals receiving distributions do not have the rights typical trust beneficiaries have, like the right to demand a trust accounting, or the right to be a necessary party to a non-judicial modification of the trust instrument.

Lastly, a purpose trust established in Delaware can exist in perpetuity. Many other states have eliminated or extended the rule against perpetuities for standard trusts but retain a relatively short perpetuities period for non-charitable purpose trusts. This can often be a deciding factor when considering where to establish a purpose trust.

Key Roles and Administration

Trustee

The trustee of a purpose trust has the same responsibilities as the trustee of any other trust. In a directed trust structure, this generally includes the typical administrative trustee functions discussed in our previous article, The Role of an Administrative Trustee (cite to article). This includes (1) arranging for the custody of assets and trust accounts, (2) preparing and facilitating trust accounts to the other fiduciaries, (3) preparing or arranging for the preparation of trust tax returns, and (4) maintaining trust records.

Enforcer

As the name suggests, the enforcer is responsible for enforcing the trust and ensuring the trustee and other fiduciaries are fulfilling their obligations and responsibilities. The Delaware Trust Act 2025 introduced the defined role of “Enforcer” and now permits the trust’s governing instrument to grant the enforcer exclusive standing to enforce the trust’s terms, while also making the enforcer a necessary party to any non-judicial trust modifications.

Stewardship Committee

For purpose trusts that hold business interests, such as the Patagonia Purpose Trust, there will often be a stewardship committee appointed to direct the trustee with respect to any business interests. The committee can be composed of employees, shareholders, or even long-term customers who understand the business. These individuals have an intimate knowledge of the business and are often in the best position to ensure the trust and business purposes are aligned.

Other Roles

The purpose trust may also still have the roles found in a typical directed trust structure, including a separate investment direction adviser to direct investment decisions for any assets held by the trust, which may be needed to ensure the purpose of the trust is maintained.

Similarly, the trust may appoint a trust protector, for functions such as trust amendments or decisions regarding changing the trust’s situs or governing law.

Taxation and Other Considerations

Taxation

A purpose trust is generally taxed like any other non-charitable trust. If the trust agreement contains any provisions that would trigger grantor trust status as to the grantor, any trust income will be taxable to the grantor. Alternatively, the trust agreement can be drafted as a non-grantor trust, so the trust itself is responsible for any taxes.

Similarly, a gift made to a purpose trust is considered a gift for federal gift tax purposes, just as if it were made to a traditional trust, and purpose trusts can be structured as completed-gift or incomplete-gift trusts depending on retained powers of the grantor and the trust’s specific terms.

Other Considerations

When a purpose trust is created to ensure a company will be managed in alignment with the founder’s purpose, all parties need to ensure the trust is drafted into the company’s governing documents (e.g., operating agreements or bylaws) so all parties understand the trust’s role in the governance of the company.

One additional consideration is what will happen to the trust assets if a trust’s purpose is fulfilled and the implications of this decision. For example, if the remainder beneficiaries of the purpose trust are the grantor’s then-living heirs, the grantor should consider whether to allocate generation-skipping tax exemption on the transfer of assets to the trust.

Conclusion

Purpose trusts have evolved from relatively narrow honorary arrangements into sophisticated planning structures capable of preserving family values, business missions, and other long-term objectives. Delaware’s statutory framework provides substantial flexibility and administrative certainty, making the state a leading jurisdiction for the creation and administration of non-charitable purpose trusts.

Commonwealth Trust Company is pleased to provide this article as a guide. Commonwealth Trust Company is not engaged in the practice of law and is not providing legal advice by the provision of these materials. Commonwealth Trust Company recommends that clients seek the opinion of their attorney regarding the specific legal and tax issues addressed in this article.