What is a Charitable Trust?

charitable-trust

 

When establishing a non-profit organisation, founders can choose from a large range of legal forms. An organisation’s legal structure will determine the types of activities it is legally able to carry out and which government bodies it is required to seek registration from or report to. A charitable trust is one possible structure of a non-profit organisation. Find out more about the other types of legal structures here.

 

Trusts

 

Trusts are legal structures established to hold and distribute funds according to the legal requirements of the trust’s deed. The relevant type of trusts and foundations we will discuss here are charitable or philanthropic trusts and grant-making foundations. Unlike some other forms of non-profit organisations, charitable trusts are not established to specifically undertake action to fulfil a purpose, but to distribute funds in a considered way in order to enable other organisations to pursue their purpose.

 

The governance of a trust is the responsibility of its trustee or trustees; their role is similar to that of a board director. Beyond that and in the case of administration breakdown or if the trust’s deed becomes impossible to fulfil, the Attorney-General may have the authority to adjust the trust’s purpose to make it more meaningful or to close it.

 

Charitable trusts are often set up through a bequest in a will, but do not have to be. A trusts is established with the investment in the trust of an initial corpus of money that may be held in perpetuity. A certain percentage of the interest on this sum is granted periodically to particular causes, organisations, winners of scholarships or other grant-seekers. In some cases, a trust’s deed or other legal requirements such as wanting to retain tax exempt status may require that the trust only make grants to non-profit organisations or to charities.

 

Many trusts are managed by a trust administrators and a variety of organisations and companies offer this service. These administrators enable trusts to be maintained in perpetuity beyond the lives of the person or people who established the trusts, the initial trustees or indeed anyone who ever knew them.

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Foundations

 

Foundations are another form of charitable trust. There are a number of different types of entity that fall under this title, including private charitable funds, ancillary funds, family foundations and community foundations.

 

An alternative to establishing a foundation is to set up a sub-fund in an already established foundation (see public ancillary funds below). There are a range of foundations that offer this option, including The Australian Communities Foundation and the State Trustees Australia Foundation.

 

Private or public ancillary fund

 

Private and public ancillary funds are a fairly new type of charitable trust. Like other non-profit trusts and funds they are a type of entity that distributes funds for a chosen charitable cause or purpose.

 

Private ancillary funds (PAFs) are intended for families or private individuals who wish to have more control over their philanthropy than they would have through another type of trust or foundation. Like charitable trusts, PAFs continue in perpetuity and provide a sustainable way of supporting a particular cause. PAFs must be managed by corporate trustees and are usually initiated with a minimum of $500,000 initial donation. The Australia Taxation Office has information available on private ancillary funds here.

 

Public ancillary funds (PuAFs), unlike PAFs, are not directed by a specific group or individual. PuAFs encourage the public to contribute to the foundation through one of a number of smaller sub-funds. The creation of a sub-fund allows donations towards the case cause to combine funding to greater effect and avoid the complex process of establishing their own trust or foundation. More information on both private and public ancillary funds is available through Philanthropy Australia.

 

This fact sheet is intended as a simple overview of non-profit legal forms and terminology. Non-profit law is incredibly complex and there will be many exceptions, restrictions, allowances and important qualifications that are not described above. This fact sheet is not intended and should not be taken as legal advice. In many cases, serious penalties apply to organisations that are found to be lax in fulfilling the requirements of their legal structure. Dedicated legal advice should be sought from a legal practitioner before taking action.

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