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Charitable trusts, a better way of giving

23rd February 2015

It is estimated that the total amount donated to charities by UK adults is in excess of £10bn annually.

In recent years there has been increasing scrutiny of the expenditure of UK charities. It has been noted that certain charities have reported spending less than 50% of their income and donations on charitable activities, with a large amount spent on administration, premises and staff.

For this reason many donors would now like to specify to their chosen charities how the donated funds should be spent, particularly when these are substantial.

A charitable trust is a better way of gifting substantially to charity compared with making absolute gifts, because the trust provides wide discretion for the Settlor, the person who creates the trust, to ensure that funds are used exactly for the purposes intended. These can include benefiting the local community as opposed to elsewhere and avoiding wastage.

A charitable trust can be established during lifetime or by Will and provides the opportunity to specify exactly which charitable purposes the funds are to be used for. In addition a letter of wishes can be signed to assist and guide the trustees in how funds are to be applied.

There are no rules against how long a charitable trust can last for and it can run indefinitely leaving a lasting memorial to the Settlor. This is particularly the case where the charitable funds are to be applied in the local community, as is often the Settlor’s wish.

The Settlor can specify his choice of name for the charitable trust which is often a family name or that of someone who they would like to remember.

There are also tax advantages as donations to UK charities can be used to reduce higher rate tax and Gift Aid can be reclaimed by the trust where the donor is a UK taxpayer. Charitable trusts are also exempt from income tax on investment income, which ensures that the maximum amount is available for charitable purposes.

When the income of a charitable trust exceeds £5,000 per year, it can also be registered with the Charity Commission.

Considering the above, charitable trusts should be the first choice for Settlors wishing to give substantial assets to charity but within a controlled legal framework, by which the trust retains control over application of funds.

For these reasons a charitable trust is worth serious consideration.

George Ide
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