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Charitable Trusts

What is a charitable trust?
A charitable trust or foundation is a legal entity which can be set up by anyone who has decided that they want to commit to setting aside some of their assets or income for charitable causes. It does not require a substantial sum of money to set up a trust. Often the initial endowment is a lump sum from a bonus, an inheritance, or the sale of shares. But because a charitable trust is classified as a charity, it can receive money through tax-efficient giving methods - using Gift Aid, Payroll Giving or Share Giving, for example.

What are the benefits?
Setting up your own trust provides a framework for planning your charitable giving in a systematic and thoughtful way. It also gives you a greater say in how the money you give is allocated to the causes you want to support. This is strengthened if you set out the aims and priorities for the trust, and the criteria against which you will assess applications for support. Many people involve their family as trustees, and find it a very enjoyable and constructive way of developing a shared family commitment to support charity.

Charitable trusts provide a number of tax benefits. Apart from the tax relief on your own donations to the trust, no tax will be charged on any investment income. No corporation tax or inheritance tax will apply, and the trust will be exempt from business rates if it eventually comes to run its own office. In addition, unless the trust is very large, it will not have to register VAT.

Furthermore, donations to the trust can be made through Payroll Giving, ensuring that your donations can be almost doubled by taking advantage of the 10% government top-up, not forgetting any employee matching scheme that your company may have on offer.

Trusts are completely independent of Government or any external control. You and the other trustees can decide independently exactly how much you would like each beneficiary to receive. It is simple for them and for you. Your main obligation is to work within the charitable purposes as established by the Trust Deed.

The only external supervision comes from the Charity Commission. After initial registration, the trust is required to publish a formal report and accounts each year (including a list of the main organisations it has helped) and it must send the Charity

Commission an annual return and report any significant changes. The Trust can continue after you die, and indeed may be the beneficiary of a legacy from your estate. The trustees will continue to distribute funds according to the guidelines set out in your constitution. This way you can ensure that your favourite causes continue to benefit.

How do they work?
There are several ways of setting up a trust, but the basic model requires:
• A donor or "settlor" (which may be you, your family or business)
• Trustees (which could be you and members of your family, as well as someone outside the family such as your lawyer, or a family friend)
• Charitable purposes (these purposes define the type of causes the trust intends to support)
• A Trust Deed (which forms the trust's constitution)

The trustees hold and control the trust's assets. They manage the investment of capital (with professional advice if they wish) and decide how the income of the trust is to be distributed, and ensure that it is in line with the charitable purposes of the trust.

The charitable purposes describe the sort of causes that the trust can support. The charitable purposes must be for public benefit within a very broad range of activities that may involve relieving poverty, advancing education or religion, or helping the community in many other ways. There are very few restrictions, mainly that the charitable purposes cannot involve party politics or private profit. Within the charitable purposes, a trust can help organisations or individuals. It can operate anywhere in the world unless the charitable purposes restrict it to the UK or a more local area.

The Trust Deed is the constitution of the charitable trust. It sets out the framework within which the trustees must operate. Apart from describing the charitable purposes for which the trust has been established (which can be very general), the Trust Deed describes the powers and responsibilities of the Trustees, how they are appointed and removed, the approach to investment, how the constitution (but usually not the charitable objects) can be altered and what is to happen after the death of the settlor.

You can choose what to call your trust, so it can carry your family name, or that of someone you wish to honour, or be completely anonymous. By giving it a personal name, you can give your charitable giving an identity, which can be as flexible as you wish. You don't have to include the word 'trust' in the title You can call it a 'foundation' or 'charity' or any similar term as these words are practically interchangeable in a legal sense.

Although, with expert help it is relatively easy to set up a charitable trust, it does require effort both at the start and in terms of running costs (which can be met out of the trust's own income). Usually your lawyer or accountant will manage all of that, for a fee. Running costs are generally not high, but some trusts have eventually become large enough to make it worthwhile or necessary to employ their own professional staff.

There are several options available to settlers who may be uncertain about exactly how to make sure their grant-making is effective or who may want to ensure that their trust remains active beyond their lifetimes. For further details, contact one of the organisations detailed in the section below.

Where do I go from here?
There are a number of organisations who can help you set up charitable trusts:

The Association of Charitable Foundations is a membership organisation of over 300 grant making trusts. Members include some of the country's largest Foundations as well as small individual or family trusts with assets well under £100,000. It provides guidance to members and potential members, and liaises with government and other agencies on behalf of its members. It is able to provide a list of lawyers with expertise in this field, and other advice on setting up a trust.

You can also create your own trust account through Charities Aid Foundation (CAF). CAF operates a simple system which allows you to set up a Trust. You can call it what you like and it would operate as a sub-trust of CAF. You can put money, shares or any other asset into the Trust in any of the ways that you could with any other charity. As CAF is itself a charity all the same tax benefits apply. You discuss your intentions with the CAF Trust Department and they will advise on the best way to give. From the perspective of the donor, the effect is the same as if you had an independent trust, but it is the Trustees of CAF who take responsibility for the reporting to the Charity Commission, Inland Revenue and who will manage the investments with reference to your requirements for the trust.

You can also involve your family or colleagues in the decision making and the duty can be passed on to a successor or CAF can carry out the grant giving in line with your wishes. The trust can be set up within a week and you will then be able to make donations by standing order, "charitycheque" or by "charitycard", the equivalent of a debit card. There is usually no charge for setting up a trust but CAF takes an annual fee towards its costs.

Community Foundation Network can help you find out more about community foundations, which exist to help donors with their charitable giving and also serve the needs of local communities. Community foundations provide a service for local individuals and businesses to create funds that operate like charitable trusts but with the community foundation taking on the administration and financial management. The foundation works with each donor to decide how much or how little involvement the donor wants in the fund they are setting up and whether the donor wishes to determine the range of grants to be made, or ask the foundation to direct grants where the needs are greatest in the local community.

This sort of fund can be set up with a single donation, regular contributions that build up to a bigger fund or occasional gifts when opportunity arises. The community foundation will handle the paperwork to set the fund up, including ensuring tax advantages. You do not need to set up a personal trust, either independently or through CAF, as the community foundation's trustees take care of the administration and manage the investments and use their knowledge and expertise in grant-making.

This fund will carry the name of your choice (and anonymity will be respected if you wish). If a family or company has strong links with a community, and has served it well, a named fund in the local community foundation can be a permanent memorial. It can be for general purposes, or could be directed towards specific causes or concerns which reflect the interests of the donor and their family. Community foundations can also make grants from these funds outside their immediate areas (within the UK or overseas) in accordance with the donor's wishes.

There are community foundations covering most of the UK and hundreds of individuals, families and companies have set up funds within them instead of creating free-standing trusts.

Can I contribute to existing charitable trusts?
Yes - you could approach an already established trust and explore whether its trustees would accepted a "designated" fund provided by yourself, on terms acceptable to you.

It is appropriate when you have a very clear reason for approaching the specific trust. An example might be the establishment of a scholarship at a school or specialist college, or a charity which is already working in the relevant field, such as medical research or overseas development, where there is an existing expert infrastructure to approve and monitor projects. It should also be remembered that it may be easier for an established organisation to secure first class committed trustees with the necessary expertise.

The latter approach will probably take more time than going via CAF or community foundations, and some established trusts may not be able to manage a smaller trust with its own distinct policy. Many would require a minimum of £100,000 as an endowment.

The Association of Charitable Foundations will be able to advise you if you wish to identify an active trust in a specific field.

Further Information
The following organisations will provide you with further information concerning charitable trusts:

Association of Charitable Foundations
Community Foundation Network
Charities Aid Foundation
Inland Revenue

Alternativley you can contact Lesley Brooman at the hospice on 01444 471598.

Source: http://www.givingcampaign.org.uk/