A - F

Charitable trust

Trusts for charitable purposes are those trusts that are considered to be of such value and importance to the community that they receive especially favourable treatment including tax concessions and more flexible legal rules relating to their duration and beneficiary class. Regulation of charitable trusts is exercised by the Charity Commission (CC) and to a lesser extent the High Court. The main legislation is contained in the Charities Acts 1992 and 1993 but these are likely to be superseded by a new Charities Act.

To be charitable a trust must have wholly charitable objects which, currently, are objects for the relief of poverty, advancement of education, advancement of religion and other purposes beneficial to the community. These objects date back to the Charitable Uses Act 1601, were codified by Lord Macnaghten in 1891 and have been extensively developed by case law. A charity is a purpose trust.

Central to the concept of charity is the delivery of public rather than private benefit. The new legislation will define charity based on the principles of public benefit, and a list of defined charitable purposes.

Charity trustee

Section 97(1) of the Charities Act 1993 defines charity trustees as "… the persons having the general control and management of the administration of a charity" and in their booklet, The essential trustee (CC3), the CC describes them as, "… the people who serve on the governing body of a charity. They may be known as Trustee, Directors, Board Members, Governors or Committee Members. Charity Trustees are responsible for controlling the management and administration of the charity." In general terms trustees are responsible for the proper administration of the charity in accordance with the law, and its trusts as set out in the governing document. Their overriding duty is to pursue the objects of the charity and they must apply the income and property of the charity exclusively for these objects. Their general duties are set out in the common law and statute.

It is important to be clear about who the charity’s trustees are as confusion can often arise when looking at the reality of a charity’s administration. This is not helped by the plethora of titles used to describe the trustee body as described above. Generally there is a clearly defined group of individuals which exercises control over the administration of the charity, but sometimes there are a number of bodies that exercise similar degrees of control regardless of what their titles are. For example, a working group may have metamorphosis over time to exercise more general powers of management such that its members may be classed as trustees in accordance with above definitions. This may also happen where a chief executive comes to exercise control over the trustee body – in a charitable company this person would be classed as a Shadow Director in accordance with the Companies Act 1985, section 714(2).

See definitions of Custodian and Holding Trustees below.

Custodian trustee

Those trustees who run the charity can be thought of as managing trustees - these should not be confused with Custodian or Holding trustees. A charitable company is recognised as having a distinct legal personality and can thus hold property and enter into contract in its own name. This is not the case with charitable trusts and unincorporated associations where individual trustees have to undertake these roles and transactions.

A custodian trustee is a corporate body which holds investments and land on behalf of charity under the powers of the Public Trustee Act 1906, section 14. Typically this will be the Public trustee, Official Custodian for Charities or some other corporate body such as a bank, insurance company or local authority. They are entitled to charge fees and whilst a charity has a general power to appoint a custodian, the governing document must have an explicit power permitting payment.

Custodian trustees are limited to holding legal title to property, receiving income form assets and remitting income to the charity. They must act on the instructions of the charity trustees and if such instruction result in a breach of trust it is the charity trustees who are liable (unlike it the case of holding trustees – see below). However if a custodian trustee acts outside the terms of the agreement with the charity they will be liable for any breach of trust. Beyond the activities above the custodian has no power to act in the management of the charity. Termination of a custodian trustee must be by an order of the Court or the Charity Commission under section 4(1)(a) of the 1906 Act.