How Does a Charitable Trust Work?

A charitable trust is a trust for a specific purpose, where there is no beneficiary.

The purpose of a charitable trust must be 'charitable' according to the Charities Act 2011 and must be for the public benefit.

Fiscal Advantages/Benefits

• Exempt from Inheritance Tax
• Exempt from tax on investments
• Exempt from income tax
• Gift Aid (reclaim the basic rate of tax on gifts)

Charitable Status - Poverty

Poverty is defined in the case of RE COULTHURST as the condition of having less than what is considered normal in terms of food and clothing.

In the case of RE SAUNDERS TRUST, a gift left for the working classes and their families was deemed invalid because being working class does not necessarily mean being poor. If it had followed the precedent set by RE YOUNG for the distressed working class, it would have been valid.

In the case of RE NIYAZIS WILL TRUST, a Turkish Cypriot left money for a working men's hostel in a poor area of Cyprus. The word 'hostel' implied that it was for working people in need.

In the case of JOSEPH ROWNTREE MEMORIAL TRUST, there needs to be a need for relief in order for it to be considered charitable.

Education

In the case of IRC V MC MULLEN, education is defined as a balanced and systematic process of instruction, training, and practice that includes spiritual, moral, mental, and physical elements.

In the case of INCORPORATED COUNCIL OF LAW REPORTING V ATTORNEY GENERAL, the publication of law reports was deemed to have an educational purpose because it made the law accessible to the public.

In the case of MC GOVERN V ATTORNEY GENERAL, campaigning to change the law is considered a political purpose, not research.

In the case of STUDENTS UNION, student unions are considered to have an educational purpose.

Religion

In the case of THORNTON V HOWE, the publication of writings claiming to be from the holy ghost was deemed to be of public benefit.

In the case of VARSANI V JESANI, religion does not have to be monotheistic.

Religion includes belief in one god.

Public Benefit

Charitable trusts must be for public benefit in order to be exempt from tax.

Traditionally, certain charities were presumed to be for education, poverty, or religion, but this is no longer the case.

In the case of RE FOVEAUX, a gift against animal testing was deemed charitable based on the subjective test of the donor's intention.

In the case of OPPENHEIM V TOBACCO, a gift for the children of British American workers was deemed to have a personal nexus and therefore did not have public benefit.

Differences Between Private and Public Purpose Trusts

Private: Most private trusts are void for not having a beneficiary, but purpose trusts can exist for the personal benefit of the settlor.

Public: Public purpose trusts do not need a human beneficiary to be valid and can last indefinitely, but they must carry some element of public benefit.

Cy-Pres

Cy-pres is an ancient doctrine that allows the court or the charity commission to change the purpose of a charitable trust if it is outdated, old-fashioned, or impossible to fulfill.

It keeps the property for charity and applies it to the 'next nearest' purpose respecting the donor's wishes.

If a gift is ineffective, cy-pres prevents it from reverting back to the donor or their next of kin.

When two or more charities join together, it will not fail.

Subsequent Failure

If an established charity runs out of money, discovers that its purposes have become impossible, or thinks that its purposes have become useless, the purpose can be reformed under section 61.

In the case of RE WRIGHT, a general charitable intention is not required for a gift to be kept in charity.

Section 62 provides for the fulfillment, merger, no useful purpose, and unknown donor situations.