Charitable trust
Encyclopedia
A charitable trust is an irrevocable trust established for charitable
purposes, and is a more specific term than "charitable organization
".
Charitable remainder trusts are irrevocable structures established by a donor to provide an income stream to the income beneficiary, while the public charity or private foundation receives the remainder value when the trust terminates. These "split interest" trusts are defined in §664 of the Internal Revenue Code
of 1986 as amended and are normally tax-exempt. A section 664 trust makes its payments, either of a fixed amount (charitable remainder annuity trust §664(d)(1)(D)) or a percentage of trust principal (charitable remainder unitrust
), to whomever the donor chooses to receive income. Normally, the donor may claim a charitable income tax deduction, and may not have to pay an immediate capital gains tax
when the charitable remainder trust disposes of the appreciated asset and purchases other property as it diversifies its portfolio of trust property. At the end of the trust term, which may be based on either lives or a term of years, the charity receives whatever amount is left in the trust. Charitable remainder unitrusts (§664(d)(2)(D)- paying a fixed percentage) provide some flexibility in the distribution of income, and may be helpful in retirement planning, while charitable remainder annuity trusts paying a fixed dollar amount are more rigid and usually appeal to much older donors unconcerned about inflation's impact on income distributions who are using cash or marketable securities to fund the trust.
Charitable lead trusts make payments, either of a fixed amount (charitable lead annuity trust) or a percentage of trust principal (charitable lead unitrust), to charity during its term. At the end of the trust term, the remainder can either go back to the donor or to heirs named by the donor. The donor may sometimes claim a charitable income tax deduction or a gift/estate tax deduction for making a lead trust gift, depending on the type of a charitable lead trust. Generally, a non-grantor lead trust does not generate a current income tax deduction, but it eliminates the asset (or part of the asset’s value) from the donor’s estate.
If the trust has qualified under laws such as Internal Revenue Code
section 501(c), donations to the trust may be deductible to an individual taxpayer or corporate donor.
Such trusts will be invalid in several circumstances; charitable trusts are not allowed to be run for profit, nor can they have purposes that are not charitable (unless these are ancillary to the charitable purpose). In addition, it is considered unacceptable for charitable trusts to campaign for political or legal change, although discussing political issues in a neutral manner is acceptable. Charitable trusts, as with other trusts, are administered by trustees, but there is no relationship between the trustees and the beneficiaries. This results in two things; firstly, the trustees of a charitable trust are far freer to act than other trustees and secondly, beneficiaries cannot bring a court case against the trustees. Rather, the beneficiaries are represented by the Attorney General for England and Wales
as a parens patriae
, who appears on the part of The Crown
.
Jurisdiction over charitable disputes is shared equally between the High Court of Justice
and the Charity Commission
. The Commission, the first port of call, is tasked with regulating and promoting charitable trusts, as well as providing advice and opinions to trustees on administrative matters. Where the Commission feels there has been mismanagement or maladministration, it can sanction the trustees, removing them, appointing new ones or temporarily taking the trust property itself to prevent harm being done. Where there are flaws with a charity, the High Court can administer schemes directing the function of the charity.
, trusts set up for the social causes and approved by the Income Tax Department
, get not only exemption from payment of tax but also the donors to such trusts can deduct the amount of donation to the trust from their taxable income. The legal framework in India recognizes activities including "relief of the poor, education, medical relief, and the advancement of any other object of general public utility" as charitable purposes. Companies formed under Section 25 of the Companies Act, 1956 for promoting charity also receive benefits under law including exemption from various procedural provisions of the Companies Act, either fully or in part, and are also entitled to such other exemptions that the Central Government
may accord through its orders.
, religious charitable trusts, or Bonyad
s make up a substantial part of the country's economy, controlling an estimated 20% of Iran's GDP. Unlike some other Muslim-majority countries, the bonyads receive large and controversial subsidies from the Iranian government.
Charity (practice)
The practice of charity means the voluntary giving of help to those in need who are not related to the giver.- Etymology :The word "charity" entered the English language through the Old French word "charité" which was derived from the Latin "caritas".Originally in Latin the word caritas meant...
purposes, and is a more specific term than "charitable organization
Charitable organization
A charitable organization is a type of non-profit organization . It differs from other types of NPOs in that it centers on philanthropic goals A charitable organization is a type of non-profit organization (NPO). It differs from other types of NPOs in that it centers on philanthropic goals A...
".
United States
Charitable trusts may be set up inter vivos, during a donor's life, or as a part of a trust or will at death, as testamentary. US charitable trusts vary primarily in two factors: firstly whether the charity is paid first (and the remainder, after trust termination, goes to beneficiaries, such as heirs or back to the donor) – a "charitable lead trust", or whether the charity is paid last (after termination of the trust, after other beneficiaries have received payments) – a "charitable remainder trust"; and secondly whether the payments are a fixed amount "annuity trust", or a percentage of principle "unitrust".Charitable remainder trusts are irrevocable structures established by a donor to provide an income stream to the income beneficiary, while the public charity or private foundation receives the remainder value when the trust terminates. These "split interest" trusts are defined in §664 of the Internal Revenue Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
of 1986 as amended and are normally tax-exempt. A section 664 trust makes its payments, either of a fixed amount (charitable remainder annuity trust §664(d)(1)(D)) or a percentage of trust principal (charitable remainder unitrust
Charitable remainder unitrust
A charitable remainder unitrust is an irrevocable trust created under the authority of . This special, irrevocable trust has two primary characteristics: Once established, the CRUT distributes a fixed percentage of the value of its assets to a non-charitable beneficiary ;...
), to whomever the donor chooses to receive income. Normally, the donor may claim a charitable income tax deduction, and may not have to pay an immediate capital gains tax
Capital gains tax
A capital gains tax is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property...
when the charitable remainder trust disposes of the appreciated asset and purchases other property as it diversifies its portfolio of trust property. At the end of the trust term, which may be based on either lives or a term of years, the charity receives whatever amount is left in the trust. Charitable remainder unitrusts (§664(d)(2)(D)- paying a fixed percentage) provide some flexibility in the distribution of income, and may be helpful in retirement planning, while charitable remainder annuity trusts paying a fixed dollar amount are more rigid and usually appeal to much older donors unconcerned about inflation's impact on income distributions who are using cash or marketable securities to fund the trust.
Charitable lead trusts make payments, either of a fixed amount (charitable lead annuity trust) or a percentage of trust principal (charitable lead unitrust), to charity during its term. At the end of the trust term, the remainder can either go back to the donor or to heirs named by the donor. The donor may sometimes claim a charitable income tax deduction or a gift/estate tax deduction for making a lead trust gift, depending on the type of a charitable lead trust. Generally, a non-grantor lead trust does not generate a current income tax deduction, but it eliminates the asset (or part of the asset’s value) from the donor’s estate.
If the trust has qualified under laws such as Internal Revenue Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
section 501(c), donations to the trust may be deductible to an individual taxpayer or corporate donor.
United Kingdom
In England and Wales, charitable trusts are a form of express trust dedicated to charitable goals. There are a variety of advantages to charitable trust status, including exception from most forms of tax and freedom for the trustees not found in other types of English trust. To be a valid charitable trust, the organisation must demonstrate both a charitable purpose and a public benefit. Applicable charitable purposes are normally divided into four categories; trusts for the relief of poverty, trusts for the promotion of education, trusts for the promotion of religion and all other types of trust recognised by the law, which includes trusts for the benefit of animals and a locality. There is also a requirement that the trust's purposes benefit the public (or some section of the public), and not simply a group of private individuals.Such trusts will be invalid in several circumstances; charitable trusts are not allowed to be run for profit, nor can they have purposes that are not charitable (unless these are ancillary to the charitable purpose). In addition, it is considered unacceptable for charitable trusts to campaign for political or legal change, although discussing political issues in a neutral manner is acceptable. Charitable trusts, as with other trusts, are administered by trustees, but there is no relationship between the trustees and the beneficiaries. This results in two things; firstly, the trustees of a charitable trust are far freer to act than other trustees and secondly, beneficiaries cannot bring a court case against the trustees. Rather, the beneficiaries are represented by the Attorney General for England and Wales
Attorney General for England and Wales
Her Majesty's Attorney General for England and Wales, usually known simply as the Attorney General, is one of the Law Officers of the Crown. Along with the subordinate Solicitor General for England and Wales, the Attorney General serves as the chief legal adviser of the Crown and its government in...
as a parens patriae
Parens patriae
Parens patriae is Latin for "parent of the nation." In law, it refers to the public policy power of the state to intervene against an abusive or negligent parent, legal guardian or informal caretaker, and to act as the parent of any child or individual who is in need of protection...
, who appears on the part of The Crown
The Crown
The Crown is a corporation sole that in the Commonwealth realms and any provincial or state sub-divisions thereof represents the legal embodiment of governance, whether executive, legislative, or judicial...
.
Jurisdiction over charitable disputes is shared equally between the High Court of Justice
High Court of Justice
The High Court of Justice is, together with the Court of Appeal and the Crown Court, one of the Senior Courts of England and Wales...
and the Charity Commission
Charity Commission
The Charity Commission for England and Wales is the non-ministerial government department that regulates registered charities in England and Wales....
. The Commission, the first port of call, is tasked with regulating and promoting charitable trusts, as well as providing advice and opinions to trustees on administrative matters. Where the Commission feels there has been mismanagement or maladministration, it can sanction the trustees, removing them, appointing new ones or temporarily taking the trust property itself to prevent harm being done. Where there are flaws with a charity, the High Court can administer schemes directing the function of the charity.
India
In IndiaIndia
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
, trusts set up for the social causes and approved by the Income Tax Department
Income tax in India
The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families , companies, firms, co-operative societies and trusts and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961...
, get not only exemption from payment of tax but also the donors to such trusts can deduct the amount of donation to the trust from their taxable income. The legal framework in India recognizes activities including "relief of the poor, education, medical relief, and the advancement of any other object of general public utility" as charitable purposes. Companies formed under Section 25 of the Companies Act, 1956 for promoting charity also receive benefits under law including exemption from various procedural provisions of the Companies Act, either fully or in part, and are also entitled to such other exemptions that the Central Government
Government of India
The Government of India, officially known as the Union Government, and also known as the Central Government, was established by the Constitution of India, and is the governing authority of the union of 28 states and seven union territories, collectively called the Republic of India...
may accord through its orders.
Iran
Currently, in the Islamic Republic of IranIran
Iran , officially the Islamic Republic of Iran , is a country in Southern and Western Asia. The name "Iran" has been in use natively since the Sassanian era and came into use internationally in 1935, before which the country was known to the Western world as Persia...
, religious charitable trusts, or Bonyad
Bonyad
Bonyads are charitable trusts in Iran that play a significant role in Iran's non-petroleum economy, controlling an estimated 20% of Iran's GDP. Exempt from taxes, they have been called "bloated", and "a major weakness of Iran’s economy", and criticized for reaping "huge subsidies from government",...
s make up a substantial part of the country's economy, controlling an estimated 20% of Iran's GDP. Unlike some other Muslim-majority countries, the bonyads receive large and controversial subsidies from the Iranian government.
See also
- Charitable organisation
- CharityCharitable organizationA charitable organization is a type of non-profit organization . It differs from other types of NPOs in that it centers on philanthropic goals A charitable organization is a type of non-profit organization (NPO). It differs from other types of NPOs in that it centers on philanthropic goals A...
- Foundation (nonprofit organization)
- Trust (property)
- WaqfWaqfA waqf also spelled wakf formally known as wakf-alal-aulad is an inalienable religious endowment in Islamic law, typically denoting a building or plot of land for Muslim religious or charitable purposes. The donated assets are held by a charitable trust...
- Coproduction of public services by service users and communitiesCoproduction of public services by service users and communitiesThe Coproduction of public services is the production of public services through the equal and reciprocal contribution of service users, communities and professionals, making use of their pooled resources, expertise and willingness to improve service processes and outcomes...