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Trust Law/Level V · Tax and legacy/5.3 Generations and charity/Lesson 4

Charitable trusts

What makes a trust charitable in England and Wales and in the US, who enforces it, how long it can last and what happens when its purpose fails.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. The cheapest charitable route is giving directly to an existing charity: no trust and no filings, with a US deduction under IRC §170 for itemizers; from 2026 non-itemizers may deduct up to $1,000 ($2,000 joint) of cash gifts, but not gifts to donor-advised funds.
  2. In England and Wales, a charitable trust need not register with the Charity Commission until income reaches £5,000 a year, but must meet the Charities Act 2011 public-benefit test; leaving 10% of a net estate to charity cuts inheritance tax on some assets to 36%.
  3. A new US charity, not a private foundation, with gross receipts normally $50,000 or less and assets under $250,000 can usually apply on the short Form 1023-EZ and file only the 990-N e-Postcard; missing it for 3 consecutive years revokes exemption.
  4. Drafting broad charitable purposes, or naming a fallback charity, avoids a court cy-près application if the original purpose fails (Uniform Trust Code §413); in the US the state attorney general can still enforce the trust.

MaterialsThe Charities Act 2011 (England and Wales), sections 1-4, free on legislation.gov.ukYour state’s version of the Uniform Trust Code sections on charitable trusts (§§405 and 413), if your state has adopted itThe governing document of a charity you know, if it is published, to find its stated purposes

Wonder

  1. What happens if a charitable trust’s purpose becomes impossible to carry out?
  2. Who can take trustees to court when a trust has no individual beneficiaries?
  3. Why can a charitable trust last forever when a family trust usually cannot?

Explore

  1. A charitable trust is held for a purpose rather than for named people. In English law the classic statement is Income Tax Special Purposes Commissioners v Pemsel [1891] AC 531, where Lord Macnaghten grouped charitable purposes under 4 heads: relief of poverty, advancement of education, advancement of religion, and other purposes beneficial to the community. Courts in England and in many common-law countries used these heads for more than a century.
  2. In England and Wales, the Charities Act 2011 now lists 13 descriptions of charitable purpose in section 3, including the prevention or relief of poverty, education, religion, health, the arts, amateur sport, environmental protection and animal welfare, plus a catch-all for purposes recognised as charitable or analogous to them. A purpose must also be for the public benefit (section 4), and the Act says no purpose is presumed to be. A trust to benefit particular private people, or a trust for a political purpose such as changing the law, is not charitable, although a charity may campaign in support of its own purposes.
  3. US law follows similar lines. The Uniform Trust Code, §405(a), allows a charitable trust for the relief of poverty, the advancement of education or religion, the promotion of health, governmental or municipal purposes, or other purposes beneficial to the community; the Restatement (Third) of Trusts §28 is similar. Each state’s own statutes and cases decide the details, so the rules vary.
  4. Because no individual beneficiary owns the benefit, someone else must be able to enforce the trust. In the US, the state attorney general traditionally does this, and the Uniform Trust Code also lets the settlor bring proceedings (§405(c)). In England and Wales, the Charity Commission registers and regulates charities and can investigate and act, and the Attorney General represents the interests of charity in court.
  5. A charitable trust may continue indefinitely. Private trusts have long been limited by the rule against perpetuities and related rules (lesson 5.3.3), but a trust that is wholly charitable is not void just because it may last forever. Many old endowments still run under centuries-old gifts, which is why a way to update them matters.
  6. That way is cy-près, from the Norman French for ‘as near as possible’. In the US, Uniform Trust Code §413 lets a court redirect the property to a purpose consistent with the settlor’s charitable aims when the original purpose becomes unlawful, impracticable, impossible to achieve or wasteful, instead of letting the trust fail. In England and Wales, the Charities Act 2011 (sections 61-67) sets out when property can be applied cy-près, through the court or the Charity Commission. Tax treatment of charities is covered in lessons 5.3.5-5.3.7.

Key facts

  • Pemsel’s case, [1891] AC 531, grouped charitable purposes under 4 heads: poverty, education, religion and other purposes beneficial to the community.
  • The Charities Act 2011 (England and Wales) lists 13 descriptions of charitable purpose and requires public benefit, with no presumption that it exists.
  • Uniform Trust Code §405(a) lists poverty, education, religion, health, governmental or municipal purposes and other purposes beneficial to the community.
  • In the US the state attorney general enforces charitable trusts; in England and Wales the Charity Commission regulates charities.
  • A wholly charitable trust may last indefinitely, unlike most private trusts.
  • Under Uniform Trust Code §413, a court may apply cy-près when a charitable purpose becomes unlawful, impracticable, impossible to achieve or wasteful.

Exercise nine, six, three, one

9CollectList up to 9 charitable causes or organisations you know of (some people will list fewer), such as a food bank, a school, a place of worship, a hospital, a museum, a sports club or an animal shelter.
6ClusterSort them into 6 categories: poverty and need, education, religion, health, arts and heritage, and other community purposes.
3DistillReduce the 6 categories to 3 groups: causes that fit one of the 4 Pemsel heads, causes recognised only under the longer 2011 list, and causes you are unsure would count as charitable.
1CrystallizeWrite 1 sentence explaining, in your own words, why a charitable trust needs an outside enforcer such as an attorney general or the Charity Commission.

Fact check

Dates, figures and claims checked against the published sources listed below.

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