CHARITABLE TRUSTS

Sarah Cash, Partner A charitable trust is an organisation which can be

029 2022 4871
set up by anyone who has decided that they want
sarah.cash@
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to contribute some of their assets or income for
charitable causes. A charitable trust is a registered
charity and can be established as a company or
unincorporated association.
The trust is governed by a trust deed which includes the charitable purposes that the trust will
work within.

A large amount of money is not needed to set up a simple charitable trust. As a charity, it
can receive money tax-free using individuals gift aid or payroll giving. A charitable trust may
be suitable for regular contributions to a number of causes, if you want to give a reasonable
amount as a one-off gift from time to time, or if you want to ask others to contribute to the
trust’s funds.

What are the advantages?

A charitable trust will provide a structure for your charitable giving. It gives you the
opportunity to have greater involvement in how the money that you give is used by the causes
that you want to support.

You have the choice what to name your charitable trust, so it can be in your family name or
that of someone you want to honour or remember, or be totally anonymous. If you give your
charitable trust a title then you are giving it a personal identity. You don’t have to include the
word ‘trust’ in the title. You can call it a ‘foundation’ or ‘association’ or similar term.
You and the other trustees, who may be family or friends, can decide independently
exactly how much you would like each charitable cause to receive. Your main
responsibility is to work within the charitable purposes and the powers set out in the
trust deed that governs the trust.

The trust will be able to take advantage of many tax benefits. Apart from the tax relief on
your own donations to the trust, it will not pay tax on its investment income. It will not
pay corporation tax or inheritance tax, or business rates (you pay no more than 20 per
cent on any non-domestic property which is used for charitable purposes) if it eventually
runs its own office. Also the charitable trust will not be required to register for VAT,
unless it starts to supply a significant amount of products or services that are subject to
VAT. This is unlikely if it is simply making grants or donations to other charities.

If you are employed, and your employer has a scheme where they will match your
donations to charity, for example through payroll giving, you may be able to take
advantage of this to make your charitable trust even larger.

In England and Wales, the only outside supervision comes from the Charity Commission.
Once the charitable trust has been registered it is required to publish a formal annual
report and accounts which should include a list of any donations made to organisations
and report any significant changes to the charitable trust. These reports are filed at
the relevant supervisory body. This should generally not be a significant administrative
burden.

The charitable trust can continue after your death, and may benefit from a legacy from
your estate which will also be tax-free. The trustees will continue to distribute funds
according to the guidelines set out in the constitution. This way you can make sure that
your chosen causes continue to benefit.

How does it work?

There are several ways to set up a charitable trust, but the basic model needs:

• A donor (which may be you, your family or business);

• Trustees (who could be you, your family, as well as someone outside the family such
as a solicitor at Hugh James or a family friend);
• Charitable purposes (which set out the type of causes the charitable trust can
support); and
• A trust deed (which establishes the charitable trust’s constitution)

The trustees are responsible for controlling the charitable trust’s assets. They decide
how the income and assets of the trust should be distributed, and make sure that this is
consistent with the defined purposes of the charitable trust.

The charitable purposes form part of the trust deed and describe the type of causes that
the charitable trust can support. These can be worded generally in order for the trustees
to have the maximum amount of discretion, or can be very specific to ensure that the
funds are distributed for the purpose intended by the donor.
The charitable purposes must be for the public benefit. This includes the relief of poverty,
promoting education or religion, or helping the community. Guidance on the definitions
of public benefit can be found on the Charity Commission website.

The charitable trust can help organisations or individuals. It can operate anywhere in the
world unless you have restricted your charitable purposes to the UK or to a particular
geographical region.

The trust deed sets out the framework within which the trustees must operate. Apart
from setting out the charitable purposes for which the trust has been established, a trust
deed will generally set out:

• The powers and responsibilities of the trustees;

• The appointment and removal of trustees;
• The investment powers;
• How the trust deed (but usually not the charitable purposes) can be amended; and
• What happens after the death of the donor.

It is not possible to give an exact estimate of set up or running costs but, as a guideline
only, if you ask Hugh James to help you to set up a charitable trust, the cost is around
£1,500 plus VAT. There will also be yearly fees in respect of the running costs (which
either Hugh James or your accountant can deal with) which might be in the region of
£1,000 plus VAT (depending on the size of the investment). If there is a significant lump
sum, there may also be investment management fees to ensure the best return on your
investment.

Key contacts

Sarah Cash, Partner Stephen Williams, Solicitor

Asset Management Asset Management
029 2022 4871 029 2039 1029
sarah.cash@ stephen.williams@
hughjames.com hughjames.com

Hodge House
114-116 St. Mary Street
Cardiff CF10 1DY
T: 029 2022 4871
www.hughjames.com