Checklist: Is a Charitable Trust Right for Us?

Charitable trusts enjoy a wide range of benefits. They are treated particularly favourably for tax purposes, and provide trustees with significant flexibility to determine the direction of the trust’s activities.

But a charitable trust arrangement is not suitable for every organisation’s needs – and many organisations will not qualify for charitable trust status. This checklist will help you determine whether or not a charitable trust is the right choice for you.

Will the trust have exclusively charitable purposes?

It is only possible to establish a charitable trust if the organisation will have exclusively charitable purposes. These are set out in the Charities Act 2006, but have their roots in the four categories of charitable purpose developed by Lord Macnaghten in the 19th Century. Broadly speaking, charities must work to: relieve poverty; advance education; advance religion; or complete some other work of benefit to the community at large.

Do your activities fall outside the proscribed invalid purposes?

As well as having a charitable purpose, a charitable trust is expressly forbidden from carrying out work deemed to be incompatible with its charitable status. Amongst other things, this means that charitable trusts must not be profit-making organisations. Similarly, it may not engage in any form of political activism.

Do you wish to give power to trustees?

Charitable trusts extend a wide range of powers to trustees, often over and above those given to trustees of non-charitable trusts. This is partly because charitable trusts do not need to specifically name their beneficiaries. This means that trustees can use their own discretion to determine how assets are best disbursed.

Do you want to minimise your tax burden?

Charitable trusts enjoy very favourable tax treatment. Unlike non-charitable trusts (or, indeed, charitable corporations), they are exempt from corporation tax and personal income tax. They are generally exempt from Capital Gains Tax and Council Tax. Crucially, donations to charitable trusts are also tax deductible – meaning that potential donors have an extra motivation for giving.

Have you received a gift or bequest that you want to protect?

Charitable trusts are often established as a direct result of a single gift of bequest. Many people establish charitable trusts in an effort to protect their own bequest, or a bequest that was left to them with a charitable intention. A charitable trust can be a great way to ensure that this charitable purpose is maintained, as a result of the legal restrictions on its activities.

Are you looking for a flexible way to give to a range of causes?

Some individuals also set up charitable trusts not to address a single problem, but because they are looking for a flexible way of giving to existing charities. Charitable trusts can provide a particularly efficient way of achieving this, as a result of their favourable tax and legal treatment. You should note, though, that charitable trusts will generally have to have an income of at least £5,000.

You should remember that a charitable trust arrangement is just one of the options available to you. Other structures may be more beneficial, particularly if you wish to carry out a mixture of charitable and non-charitable activities. If you are in doubt, make sure that you seek advice from a solicitor.