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A charitable trust (or charity) is a trust organized to serve private or public charitable purposes.
Legal distinctions
A legal definition of a charitable purpose includes the relief of poverty, the advancement of education, the advancement of religion, or other purposes considered beneficial to the community.
Because of the benefits provided by charitable trusts, they are subject to certain benefits under the law. For example, transfers of property to a charitable trust are usually exempt from the rule against perpetuities, which would otherwise operate to void a transfer made after a certain period. Furthermore, charitable trusts come under the doctrine of cy pres, which holds that if the charity designated in the trust ceases to exist or otherwise becomes unable to carry out the purpose of the trust, then the trust property can be transferred to another charity with a similar purpose.
Oversight
Some charities are referred to as foundations. Charitable trusts are usually non-profit organisations or registered with the government of a country. The charity is then required to report its activities (especially financial ones) to the government, usually on an annual basis. There is normally an obligation to register a non-profitable charitable organisation, as the public is entitled to some oversight of organisations that wish to act for the public good. In the United States, because of the principle of separation of church and state, churches and other religious organisations are often exempt from this legal requirement, although they are often overseen by a church hierarchy. In the United States, there are complex tax law differences between private and public charities. The use of the word "foundation" in an organization's name does not impart any legal benefit, generally speaking.
In many countries the charity sector is fast growing. Charities often take over services that used to be provided by the state, such as health, old age and unemployment, as the state finds it increasingly difficult to fulfill its traditional social responsibility.
Charities in different countries
Australia
In Australia, non-profit organisations and charities are registered with the Australian Taxation Office as deductible gift recipients (DGR).
Canada
Canada has over 75,000 registered charities, of which more than 40% are places or worship such as churches and mosques. Other registered charities include institutions such as universities and libraries. About 23% of registered charities exist to help the disadvantaged. Annual giving in Canada is over $90 billion CDN, if one puts a dollar figure on volunteer time. The most charitable province is Newfoundland, which has the highest rate of individual donations per capita. Canadians give, on average, $239 dollars per year to charity. About one third of Canadians volunteer annually and 5% of corporations make donations. In Canada, approximately two-thirds of the funding for charitable foundations comes from the government.
The level of government funding has recently caused controversy as cutbacks have led to problems with such programmes as food banks. Another controversy is the denial of charitable status to environmental and political groups. There have also been calls for greater regulation of the charitable sector. Recent years have seen a new breed of charities that pour most of their donations into marketing. These groups grow quickly and attract many donors but a far smaller fraction of each donation goes to help the needy.
United Kingdom
There were over 200,000 registered charities in the UK at the start of 2005.
- The 180,000+ charities in England and Wales are registered with the Charity Commission for England and Wales. The Charity Commission has an online register listing them all. Many charities are also limited liability companies registered with Companies House. Using this latter model limits the liability of the Trustees and is the recomended model in the charity owns property, or employs people.
- The 20,000 or so charities in the Scotland are registered with the Inland Revenue. However, in 2006 a bill will be passed, registering charities with The Office of the Scottish Charity Regulator (OSCR).
United States
In the United States of America, the Attorney General of each state maintains a registry of charitable organizations. Donations to charities in the United States are deductible for income tax purposes if the organization has exempt status from the Internal Revenue Service, usually under non-profit organization sec. 501(c)(3) of the tax code. Any organization meeting the rules of that section can be classified a charity in the US, including trusts, foundations, and corporations.
US tax law also allows trusts that do not qualify as exempt under 501(c)(3) to get significant tax advantages if they are set up with specific provisions.([1]). These are called Charitable Remainder Trusts (CRT) and Charitable Lead Trusts (CLT). Charitable Remainder Trusts are so named because the remainder of the assets in the trust passes to a designated charity at the death of the grantor or one or more beneficiaries. A current tax deduction is given for the portion that is determined to be the expected amount the charity will receive in the future, which is called the remainder. During the lifetime of the primary beneficiary, a percentage of assets or a fixed dollar amount are paid to the primary beneficiary. There are two primary types of CRTs: Charitable Remainder Unitrusts (CRUT), where a percentage of assets is received by the lifetime beneficiary, and Charitable Remainder Annuity Trusts (CRAT), where a fixed dollar amount is received every year. Charities or other trustees are also allowed to set up pooled trusts that operate similarly to individual CRTs except that they receive contributions from multiple donors. This allows each donor similar benefits as an individual CRT without the expense of creating the trust themselves.[2] The Charitable Lead Trust is essentially the reverse of a Charitable Remainder Trust ([3]). In this form, the lifetime payments go to the charity and the remainder returns to the donor or to the donor's estate or other beneficiaries. Thus the two types of CLTs are CLUTs and CLATs, which are analogous to CRUTs and CRATs.
Similarly named and often confused with CRUTs and CRATs are Grantor Retained Unitrusts (GRUT) and Grantor Retained Annuity Trusts (GRAT) ([4]). The difference is that GRUTs and GRATs do not involve charitable beneficiaries and therefore are not given the charitable deduction.
List of charities
See: List of charities
See also
External links
Charity regulating bodies
News, information and services in the charity sector
International
United Kingdom
Evaluations of charities
United States
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