Establishing a Charitable Trust

As is investigated in articles throughout this section, a charitable trust can be a valuable tool allowing individuals to make charitable donations in a tax efficient way, or ensure that their donations are well managed. The great beauty of these trusts is that they are relatively easy to establish.

The most important document to be considered is the trust deed. When establishing a trust of any sort, be it charitable or non-charitable, a trust instrument is almost always used. This is a written document outlining the terms of the trust, and giving details of the trustees and beneficiaries. In the case of charitable trusts, the trust instrument must be written in deed form, and is therefore known as the trust deed.

Deeds are agreements by which rights are granted to a party, with the assent of one or several other parties. This document must be written ‘under seal’; the aid of a solicitor will probably be required to ensure that this document is drafted properly.

Purpose

When drafting the terms of your trust deed, there are a number of factors that must be considered. Primarily, it is important to consider for what purpose the trust is being established. In order to be deemed to be charitable, the trust must have a charitable purpose. This is defined in the Charities Act 2006, and is explained in detail in an article elsewhere in this section.

Broadly speaking, however, a purpose is deemed to be charitable when it has some public benefit. A purpose benefiting individuals, particularly those already connected with the trust, is unlikely to be deemed charitable. Instead, charitable purposes are broader: poverty relief; provision of health care; environmental protection and so on.

Trustees

Having established a purpose, the trust deed must give details of the settlor (that is, the individual establishing the trust) and the trustees. The latter individuals will take on the responsibilities of the day-to-day management of the trust. They have a ‘fiduciary’ responsibility to the beneficiaries of the trust; this means that they must act in the best interests of the beneficiaries at all times, and subordinate their own concerns to those of the trust. In the case of a charitable trust, they also have a responsibility to act for the purpose of the public benefit, in accordance with the declared purpose of the trust.

It may seem to be a minor concern, but the process of a choosing a name for the charitable trust is also important. In the first instance, the Charity Commission, which regulates the activities of charities in the UK, has fairly strict guidance on accepted names for charitable trusts. Furthermore, you will not be able to choose a name that is similar or identical to that of an existing charity. If you wish for your charitable trust to appeal to members of the public, it is also important to remember that the name will be what they see first, and so it should be memorable and descriptive.

Having drafted your trust deed with a solicitor, it then needs to be passed on to the Charity Commission for perusal. Finally, in order to become effective, the charitable trust must then be funded by the settlor. At this point, the trust comes fully into existence.