How Do Charities Work?

Photo by Marco Michelini
Photo by Marco Michelini

The term 'charity' popularly connotes the relief of poverty. In English law it has a wider meaning and comprises four principal divisions into which charitable objects have been classified, namely those: (1) for the relief of poverty; (2) for the advancement of education; (3) for the advancement of religion; and (4) for other purposes beneficial to the community, not falling under any of the preceding heads. Not all objects under head (4) are charitable but only those which in a wide sense are within the 'spirit and intendment' of a list of charitable objects in a statute of Elizabeth I.

A charity can be founded by trust deed or will and in other ways and can be an incorporated or unincorporated institution. It must benefit the community or a substantial class of the community, save in the case of the relief of poverty where the element of public benefit is less rigorously required. A trust for a specific individual or individuals even in the relief of poverty would not be charitable. A charity must be for exclusively charitable purposes so that a trust for charitable or benevolent purposes is not a charity.

The practical advantages of a charitable trust over other trusts include the following points. (1) The rule against a perpetually inalienable fund does not apply, thereby permitting trust funds to be settled for an indefinite period. (2) A charitable trust will be enforced notwithstanding that there is no human beneficiary. Normally, purely purpose trusts will not be enforced for want of an identifiable beneficiary, but the attorney-general is charged with the enforcement of charitable trusts. (3) Income from charitable trusts is exempt from income tax. There are also capital gains tax and capital transfer tax advantages attaching to charitable status, and the buildings occupied by a charity and used for charitable purposes enjoy certain rating reliefs. (4) The purposes of a charitable gift can be altered or prescribed by a legally-established scheme; but it has first to be shown that the original purposes were uncertain by the donor or are impracticable, and the purposes set out in the scheme must be as near as possible to the intention of the donor (the cypres doctrine); in addition, where a gift fails ab initio, for example, because an institution has ceased to exist, it must be shown that the donor had a paramount general charitable intent transcending the particular purposes he specified. Schemes can be made by the High Court and the charity commissioners. Attempts are often made by the next-of-kin to obtain declarations from the court that trusts do not satisfy the legal test of 'charity' and are therefore void; the effect of such declarations is that the trust funds either form part of the testator's residuary estate or pass to his next-of-kin as though he had died intestate.

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