By Lucy Wood TEP, Private Client Partner at B P Collins LLP
As a Trustee of a Charitable Trust, you play a vital role in ensuring your charity’s funds are put to good use. But deciding how and when to distribute those funds can be challenging, especially with ever-evolving needs and responsibilities. From managing reserves to updating outdated objectives, this article explores key steps to help you stay compliant, transparent, and make a lasting impact with your trust.
When a Charitable Trust is set up, the purpose is to leave a lasting legacy by making donations or grants to individuals or other charitable causes.
One of the main legal duties and responsibilities of all charity Trustees is to advance the purpose of their charity, with one of the main obligations being to decide how and when to use funds both now and in the future. Whilst there is no mandatory minimum distribution amount, broadly speaking all charities have a duty to spend their income within a reasonable period on achieving their charitable purposes.
Reserves
It is possible to keep reserves, provided the Trustees can satisfy themselves that any income retained is reserved for the proper function of the Trust. If Trustees cannot provide proper justification for holding income reserves, it could amount to a breach of trust and, where a Trust is registered with the Charity Commission, they may want to investigate this further.
Although the preparation of a reserves policy is not compulsory for most Charitable Trusts, it is encouraged by the Charity Commission and is an effective way of demonstrating how the Trustees are managing the funds.
A policy can include:
- An explanation of why you need to keep money aside, instead of spending it on your charity’s aims.
- How much your charity holds in reserve and why you need to hold this amount; and
- What your charity’s reserves can be spent on.
The Trustees should meet regularly to discuss the financial management of the trust, and accurate records should be kept of decisions. The level of detail required in the records depends on the decision being made i.e. how significant is the decision in question and what is the impact, but all records should be detailed enough for someone to understand the issues and reasonings.
The Charity Commission encourages all charities to adopt a spirit of full disclosure, and keeping accurate records offers transparency and demonstrates that the trustees have acted appropriately and complied with their duties, especially when it comes to spending the funds.
Outdated objectives
For some Charitable Trusts, there may be practical issues as to why they are unable to distribute funds.
On review of the Trust Deed, it may become apparent that one or more of the following issues apply:
- The original beneficiary group no longer exists or cannot be easily identified.
- The geographical area specified is no longer relevant; or
- The original need or purpose has fallen away.
The above issues might make it difficult for the Trustees to have a meaningful impact. However, it may be possible to update the Trust Deed, provided any changes remain in the best interests of the Charitable Trust and the correct process has been followed.
Revitalising trusts
The Charity Commission introduced the ‘Revitalising Trusts’ programme to help charities who find it hard to spend their income.
They can assist Trustees decide whether to:
- Wind up the Charitable Trust; or
- Change the purposes to allow the Trust to continue to work.
- Transfer assets to another grant-giving charity, such as a community foundation
Conclusion
There may be good reason for not being able to distribute funds, and it is possible to keep reserves as we have seen, but the key for Trustees is to ensure they are regularly reviewing the Trust Deed, the purpose of the Trust, the level of reserves and are keeping accurate records of all decisions made.
