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.
* Charities in Canada are registered with the Canada Revenue Agency (CRA).
They are designated as a charitable organization, a public foundation,
or as a private foundation.
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 recommended model
if 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).
* The 5,000 or so charities in Northern Ireland are registered with the
Inland Revenue. There is no central register of these charities.
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.
