Rules on Character

The most fundamental distinction between charitable and non-charitable trusts is to be found in what is known as their character. Non-charitable trusts can be designed and managed for virtually any legal purpose; they can benefit anyone, even the trustees, and can be established with an intention no more complex than to materially benefit these individuals. Charitable trusts, however, must be of charitable character – their purpose must be charitable and the aims of the trust must be solely for the public benefit.

Charitable Purposes

The Charities Act 2006 defines those purposes that are considered charitable in law. In order to be accepted as charitable in character, the trust must have a purpose that is compatible with the provisions given in the Act. These purposes are wide-ranging; full details are available both within the text of the Act itself, and in separate guidance available from the Charity Commission, the government body charged with regulating charities.

A brief look at some of the purposes listed as charitable should give some idea of the general guidelines. At the top of the list of purposes in the Charities Act 2006 is poverty relief or prevention; aside from this the list also includes charities that advance the cause of religion, healthcare, community development, the arts or amateur sport; and the promotion of human rights and social cohesion.

Each of the twelve overarching headings given in the Act should be treated as umbrella titles. Further information on the specific provisions and practicalities of each of these headings is available from the Charity Commission’s guidance papers on the Act.

Public Benefit

Aside from the charitable nature of the purpose of the trust, the character is also defined by the benefit derived from the trust. In order to qualify as charitable, the trust must be deemed to be managed for the ‘public benefit’. This public benefit requirement can be divided into two separate conditions. In the first instance, the trust must have a clearly identifiable benefit. The intended benefits that will occur as a result of the trust’s actions must bear a strong relation to the aims, and they must outweigh any potential negative outcomes of those actions.

The second condition concerns the people who will be recipients of this benefit. It is a basic requirement that the beneficiaries must be the public at large, or a section thereof. The most important thing to remember here is that the no-one should be arbitrarily prevented from benefiting from the actions of the trust unless the aims dictate this to be so.

For example, it is reasonable for a trust that hopes to alleviate the effects of a particular illness to exclude non-sufferers from the beneficiaries. Individuals must not be excluded as a result of factors such as their ability to pay, however. Indeed, it is made clear within the Act that poverty must not be a reason for exclusion.

The rules regarding the character of charitable trusts are relatively complex, but they are comparatively vague. This gives significant scope to those who are hoping to establish such a trust. You should seek advice from the Charity Commission when considering setting up a charitable trust; this organisation was, in part, established with the intention of helping individuals in just such a situation.