Everything you need to know about Charitable Trust

Everything you need to know about Charitable Trust

Everything you need to know about Charitable Trust

What is a Charitable Trust Fund?

Charitable trust funds come into the category of most generally used types of the trust fund in the UK. This type of trust is created with the specific charitable aim that benefits the public. Charitable trust fund gets the most tax benefits and is controlled by the Charities Commission. They provide a range of options to the individuals building this trust and is the most tax-optimized way to create a trust fund. Besides being a favorable type of trust, it also ensures a regulated and transparent structure for charity giving purposes.

From its roots, the mode of operation of a Charitable Trust Fund is identical to any other type of trust formation. For instance, it also involves the formation of trust on the consent of the settlor that agrees on the prospect of delegating and transferring the legal authority of the trustees of the assets. The management of the trust is then undertaken and executed by the trustees for the sole purpose of giving advantages of the trust to the beneficiaries.

Now the distinction here comes when we talk about the beneficiaries. Whilst in other trusts, the beneficiaries to the trust are the family members or the ones that the settlor claims. But in the case of a Charitable Trust fund, the intending beneficiaries or the beneficiaries to the trust is either a charitable cause or a charity itself. Also, the Charitable Trust Fund involves forming a trust deed whereby the legal criteria for carrying out the income, gains, and distribution of the trust assets is clearly stated. The trust deed is created in the beginning of building a Charitable Trust.

Various benefits of a Charitable Trust

For creating a Charitable Trust, it is crucial for the beneficiaries of the trust to be charitable in nature. The sole aim of the Charitable Trust Fund is to give its benefit to the public at large.

Here are some benefits of building a Charitable Trust

  • Charitable organizations are exempted from income tax, stamp duty, and capital gains tax, given that the income generated from the trust is used only for charitable purposes.
  • The properties or assets under a Charitable Trust can be offered for an indefinite time for charitable purposes and this way this trust is barred from the rules in case of perpetuities.
  • Gifts can be claimed on the donations as there is a provision for gift aid donations. The donation if qualified under Income Tax 2007 guidelines, can enjoy tax relief.
  • While the other trusts ask for the purpose of the trust to be certain, but this is not the case in Charitable Trust. The purpose or object of a charitable trust can be as simply mentioned as ‘charitable purposes,’ providing the objects of the trust are clearly mentioned and should be charitable.

Purpose of building a Charitable Trust Fund

Again, the main purpose of a Charitable Trust is to be beneficial to the general public; it can be a specific group of people or all of the people or the public at large. Moreover, giving the benefit of the trust to a certain set of individuals is not adequate when it comes to a charitable trust and also, the settlor or the trustee are not allowed to derive the direct benefits from the trust as well. The number of people included in the term- ‘the public at large’ solely depends on the nature of the purpose of the Charitable Trust fund to be created.

This kind of variation in the number of beneficiaries is acceptable since sometimes the trust is created to help a small number of people that are affected by a rare condition or disease, in both the case the only condition require to be qualified and for the Charitable Trust Register is the nature of the trust, which has to be charitable in its purpose.

Here are the various purposes for which the UK law allows the Charitable Trust to be created for the public at large. The purpose of the Charitable Trust has to come within the range of the below-mentioned categories:

  • Relief from or prevention of poverty
  • The advancement of religion
  • The advancement of health
  • The advancement of education
  • The advancement of saving of lives 
  • The advancement of citizenship or community development 
  • The advancement of the arts, heritage, culture, or science 
  • The advancement of amateur sport 
  • The advancement of environmental protection
  • The advancement of environmental protection or improvement
  • The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or equality and diversity   or racial harmony
  • The relief of those in need by reason of youth, ill health, age, financial hardship, disability or other disadvantage 
  • The advancement of animal welfare 
  • The promotion of the efficiency of the armed forces of the Crown, fire and rescue services  or of the efficiency of the police, or ambulance services 
  • Any other purposes or recognized as charitable under existing charity law, including facilities for recreation or other leisure-time occupation, if the facilities are provided in the interests of social welfare 
  • Any purposes that may reasonably be regarded as analogous to, or within the spirit of, a purpose falling within or recognized above-mentioned categories 

How is a Charitable Trust Fund created? 

A Charitable Trust is a trust formed on the basis of the trust deed created for charitable purposes concerning the specific assets placed into the trust. The deed contains the exact and concise words mentioning the framework for the usage of the assets in the Charitable Trust or the non-profit organization. However, using the trust word is not mandatory when formulating the guidelines for the use of the trust fund. Assets or gifts in the Charitable Trust are registered by the name of the trustee who legally owns it by the transfer from the settlor. The trustees are responsible for carrying out the effective management and administration of the assets and the Charitable Trust itself. 

The law for a Charitable Trust fund does not ask for the beneficiary to be a person in order to for the trust to become legally enforceable. This way it differs majorly from the other types of trust as it does not require the ‘certainty of beneficiary’ criterion. However, the individual or humans entitled to the benefit from the Charitable Trust Fund cannot enforce it legally as it is created only for the benefit of the public at large. Only the Attorney General can legally enforce the Charitable Trust. Also, the amount of the gift has to be valid as it should be determined by enough certainty, not conforming to the validity factor, the gift fails to be legally enforceable and so is the trust. Besides, the Charitable Trust offers anonymity to the donor if the donor wishes to donate charity by not revealing his/her identity. 

Charity Commission is responsible for the regulation and encouragement of the Charitable Trust and also offers advice regarding the management of the trust to the trustees. In case of ineffective administration services of the Charitable Trust, the charity commission has the authority to remove the trustees and appoint or take the trust under their control for the time being. The High Court can direct the functions of the charity by creating various schemes in case a problem surfaces in the Charitable Trust.