As can be seen from The Beacon Collaborative, new data suggests that ‘charitable giving amongst the wider wealthy population in the UK has continued to rise in overall levels of charitable giving’ and, amongst the UK’s wealthiest, ‘has increased to above the levels for this time last year, when the COVID-19 crisis took hold’.
Whilst the reasons for giving are personal and varied, as we emerge from the final stages of lockdown and return to some level of normality, it is clear that individuals are feeling comfortable with increasing their regular charitable donations. Amongst many other forms of charitable giving and philanthropy more generally, the use of charitable trusts is an important consideration as an estate planning tool and form of charitable giving which can present a range of succession, investment/wealth planning and altruistic solutions for individuals and families.
What is a Charitable Trust and how do these differ from Private Trusts?
A Charitable Trust is established where the income and capital may only be used to benefit charities or purposes that are recognised as charitable in law, for example, the prevention or relief of poverty or the advancement of health and saving of lives etc.
Amongst many other differences, charitable trusts are separate from private trusts in that private trusts ‘are declared for the benefit of ascertainable individuals with standing to enforce the trustee’s duties’[1]. Whilst identifiable individuals may benefit from the charitable purposes of a charitable trust, generally, such individuals have no standing under the charitable trust to enforce the trustee’s duties. Instead, official public bodies, such as the Charity Commission of England and Wales, have been established to regulate and enforce trustee duties and the law relating to charities more generally.
What are the benefits of establishing a Charitable Trust?
In addition to the wider public service benevolence and the reduction in social and economic inequality, the creation of a charitable trust can serve as a means of commemorating events or individuals, both from a public perspective and, as is more usual, a personal one. Charitable Trusts are usually governed by Trust Deeds or Declarations of Trust which provide the framework within which the Trust and the relevant charitable giving/activity is to operate. Our specialist advisers can draft trust deeds to give flexibility to individuals if they are not yet sure as to which specific charitable cause they wish to benefit and/or wish to accommodate a broad range of charitable purposes. Alternatively, where a donor has specific charitable purposes they wish the trust to adhere to, our specialist advisers can draft trust deeds in a more restrictive manner so that only those charitable causes the donor intends are provided for.
In addition, the potential financial incentive in the form of relief from inheritance tax for charitable gifts during lifetime and in death as well as relief from income tax through Gift Aid, under payroll giving schemes as well as relief from capital gains tax on donations of land to charity, have all provided further reasons to favour the creation of and/or the donation to charitable trusts. Our specialist advisers can utilise such tax reliefs and use the charitable trust structure to ensure the most tax-efficient form of estate planning which ultimately allows your money to be put towards those charitable causes and individuals you care about most.
The rule against perpetuities limits future private trusts interests so that they must vest within a certain and defined period of time[2]. However, charitable trusts are exempt from this rule which allows your legacy to last indefinitely within the framework provided by the governing document.
I explained this in a recent blog, which can be found here, engagement of the next generation in family philanthropy to address the difficulties in successful wealth transfer is sometimes a factor for consideration. The common proverbial saying “shirtsleeves to shirtsleeves in three generations” demonstrate the widely recognised difficulties in transitioning wealth from one generation to the next. The creation of a charitable trust that lasts indefinitely may encourage family cohesion and alignment of values with wealth to create a natural environment for inheritors to showcase and develop their skills, dedication and credibility, albeit these more personal benefits are usually ancillary to the advancement of charitable purposes and public benefit.
Conversely, an individual may wish to give and/or leave the bulk of their estate to charity if they feel this should not pass to their relatives for any reason, either practical or personal, similar to Daniel Craig’s outlook that it is ‘distasteful’ to leave heirs massive amounts of money[3].
What is required to administer a Charitable Trust?
The general management of charitable trusts is administered by the appointed trustees much in the same way that private trusts are administered by the relevant appointed trustees (although there are additional duties that apply to trustees of charitable trusts). Whether there is a need to apply for and establish a scheme with the Charity Commission, to resolve a trustee conflict of interest or to support and provide guidance to trustees in fulfilling their duties, our Charity Law specialists have the specific and necessary expertise in this field to guide you through the necessary processes.
Should you require legal advice and/or representation in relation to the creation and administration of charitable trusts, you can be confident that our specialist and dedicated Private Client and Charities experts can guide you through the necessary and most appropriate processes. We are also happy to explain and discuss further how the concept of multi-generational philanthropy can foster long-term wealth preservation in keeping with your wishes and aspirations.
[1] Snell’s Equity, Sweet & Maxwell
[2] Under s. 5 of the Perpetuities and Accumulations Act 2009, a period of 125 years is created in relation to private trusts.
[3] https://www.cnbc.com/2021/08/20/james-bond-actor-daniel-craig-on-inheri…
