There are various ways that you can achieve your charitable giving objectives, for example, by making one-off donations, creating a regular direct debit or leaving a legacy in your will. If charitable giving is important to you and you prefer a hands-on approach, setting up a charitable trust is an effective solution.
This is a trust whereby the trustees can only use any income or capital for charitable purposes that help the public. It’s a way of guaranteeing that even after your death, your assets will be distributed charitably, according to your wishes.
A charitable trust is set up using a trust deed, a governing document which lays down the rules of the trust, the objectives and who the trustees are. Trustees can be a group of friends, family members or a professional organisation that specialises in trust management. Usually you need at least three trustees.
The trust deed will lay out how the trust will be run by whom, and how the trustees will decide which causes to support. The trust deed must be valid legally, so it is a good idea to consult a solicitor. Charitable trusts can also be created by will.
In addition to the trust deed, other documents are also required, such as deeds of appointment, deeds of variation and retirement of trustees. These are necessary because as there is no limit on how long a charitable trust can run, there will undoubtedly be changes in trustees.
What is the definition of a charitable trust?
A charitable trust is a trust that’s formed for charitable purposes that help the public, e.g. things that contribute to education, health, animal welfare and relieving poverty.
You can transfer assets into the trust such as cash, property, shares, investments, etc, or by asking for donations. If the trust meets Charity Commission guidelines, then donors can claim Gift Aid on most cash donations that are made via the trust.
Any charitable trust that has a gross annual income of more than £5,000 will need to register with the Charity Commission.
In addition, Charitable trusts need to register with HMRC using HMRC’s Trust Registration Service unless their annual income is less than £5,000, they are an exempt charity (such as schools and museums) or an excepted charity such as guide and scout groups and student unions. Any changes to the trust such as the retirement of trustees also need to be reported using this service.
What is an example of a charitable trust?
You may have heard of Dick Whittington the pantomime favourite, but did you know that in the fifteenth century, he created a charity for the aged which still exists today? He was Lord Mayor of London four times, an MP and a sheriff and during his lifetime he donated to several charitable projects. He set up the charity Sir Richard Whittington, which still helps people in need.
The Sainsbury Family also have a number of charitable trusts, which provide more than £114 million in grants annually. Trusts under the Sainsbury’s umbrella include the Gatsby Charity Foundation, The Linbury Trust and The Monument Trust.
In 1936, The Wellcome Trust was founded to fund research into human and animal health. The trust has an investment portfolio worth around £37.8 billion and in addition to funding scientific research, it works alongside policymakers, runs advocacy campaigns and works alongside other organisations to ensure that everybody benefits from advances in health science.
What is the purpose of a charitable trust?
The purpose of a charitable trust is to secure funds (cash or otherwise) so that donations can be made to charity in the public interest. Funds can be invested and any interest or capital growth will be exempt from tax.
Is a charitable trust the same as a charity?
A charitable trust is a type of unincorporated charity. A charitable trust is not a legal entity in its own right and trustees can be held accountable personally if it is thought that they have acted unfavourably, i.e. they can become responsible for trust debts or other obligations.
Charities which are incorporated must report to both the Charities Commission and Companies House. In most instances, the directors are not held accountable for debts and other obligations.
A charitable trust cannot have a body of members separate to the trustees, whereas a charitable company, which must have at least one director and a board member, can have a membership that includes people who are not directors, but who can vote.
What are the rules of a charitable trust?
As a charitable trust, you must follow the trust guidelines and governing documents, submit accurate records annually if your income is over £5,000 and ensure that all legal and tax obligations are met. Trustees cannot usually benefit from a charitable trust without Charity Commission consent.
What are the benefits of a charitable trust?
A charitable trust has the following benefits:
- Giving to charity in the way you want to – a charitable trust can be structured in a variety of ways to meet the donor’s specific needs and aims. It gives you more control over your giving and how the money is used.
- A legacy – you can choose the name of your charitable trust, so you can name it after your family or a person you want to honour or remember. You can remain anonymous if you wish.
- Tax benefits – in addition to benefiting from tax-efficient giving methods like shares, payroll giving or Gift Aid, the trust won’t be asked to pay income tax, capital gains tax or inheritance tax.
- Your wishes post-death – with a charitable trust, you can be assured that your charitable wishes will continue after your death, in the way that you stipulated in your will. A charitable trust can continue indefinitely.
Disadvantages of a charitable trust
- Charitable trusts are irrevocable.
- You will not have access to any of the assets you put in the trust.
- Setting up a charitable trust can be costly and complex. It takes time to process the paperwork to set up a charitable trust, and for the charity registration to be approved in the UK. As always, specialist advice is recommended.
Conclusion
Charitable trusts, although costly and time-consuming to set up, are a good way of ensuring you create a lasting legacy in a tax-efficient way to benefit the causes that matter to you. As always with trusts, specialist advice is recommended.