Trusts are setup to manage money or property for a clearly defined purpose. They establish a formal relationship between three parties:

• The donors of money or property, (the people who started off the trust   by making the first donation, which may be only a few pounds);
• The trustees, (the Charity Commission usually require three), who become the nominal owners of the trust property;
• The beneficiaries, (the people who will benefit from the trust).

The trustees must ensure that the property or money is used for the purposes set out in the trust deed; it is generally illegal for them to benefit personally from the trust's property.

A group wishing to own property and give grants could consider the structure of a trust. However, only those groups with charitable aims may use this structure and registration with the Charity Commissioners is essential.

Which organisations use this type of structure?

It may be appropriate to establish a trust where some or all of the following apply:

• the organisation is to be run by a fairly small group of people;
• there is no time limit on how long the charity trustees will be in office (although we recommend that the composition of the trustee body is reviewed regularly);
• new charity trustees are going to be appointed by the continuing charity trustees;
• the organisation is not going to rely on a membership for any part of its administration;
• the administration of the organisation is going to be simple;
• the organisation is to be a grant-making body only;
• land and buildings are to be held on trust for permanent use for the purposes of the charity; and
• there is to be a restriction on spending capital.

Charitable trusts usually have limitations on the number of trustees and no membership so that in effect they are controlled by a small number of people.

Trustees:

• Can have an unlimited term of office
• Can only be removed if the Trust Deed allows for this
• Can acquire and manage property on behalf of the trust
• Gain powers proved by the Trust Deed (e.g. raise funding and borrow money.)
• Have property vested in them as individuals
• Can be personally liable for contracts entered into on behalf of the trust and for loss resulting from their actions which are in breach of the Trust

Advantages:

• Accountable to Charity Commission
• Quick to setup
• Procedures for winding up are relatively easy ?
• Flexible structure
• The number of trustees can be small
• Changes can be  made easily if allowed by the trust deed and agreed by the Charity Commission

Disadvantages:

• These are undemocratic organisations with no membership structure
• Trustees are the only people with the powers to make decisions
• Trustees can have an un-ruled term of office can only be removed if Trust Deed allows for this
• Trustees cannot benefit personally from their trustee role
• Personal liability for Trustees
  
  • Contracts are entered into on behalf of the Trust
  • Any Property is vested in Trustees as individuals
  • Loss resulting from their actions as a result of a breach of the Trust
    
• Transferring property to new trustees can be difficult and expensive, unless Trust Deed allows for changes.

The Governing Document:

A Trust Deed is the governing document used. A model declaration of trust (GD2), available from the Charity Commissioners model forms, should be used as the basis for a deed of trust for a charity. Always make sure that trustees are aware of the legal obligations and potential liabilities.

Trust deeds can be known by other names, such as a declaration or deed of trust, deed of settlement, or will trust.

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A model declaration of trust (GD2)

How is a trust deed put into operation?

It is executed: this means that it needs to be signed and dated, in the presence of an independent witness, by those who are setting up the trust. The witnesses must then sign their name against each of those signatures and give their address. The purpose of this is to verify the identity of those signing.

The trust deed should refer to a specific amount of money or some other asset which will belong to the trust at the time that the trust deed is executed. It is acceptable for a nominal sum of money to be declared, say £5 or £10.

If the trust deed declares a charitable trust but does not refer to any actual assets which are held on that trusts at the time the deed is executed, then it is said to be "in vacuo".

The Charity Commission will not register the charity unless and until there was independent evidence that some property has actually been settled on the trusts of the deed. The minimum requirements for registration will still need to be met (e.g. an annual income of £5,000 or more).

Does it need to be stamped?

If the deed declares trusts over cash or stocks and shares, it should be sent to the Inland Revenue, Office of the Controller of Stamps, in case it attracts Stamp Duty.

If the deed conveys an interest in land (i.e. the freehold or leasehold) it will not require stamping.

A separate certification procedure was introduced on 1st December 2003 for Stamp Duty Land Tax.

Further information can be found on the HM Revenue & Customs website (www.hmrc.gov.uk) or from the Stamp Office helpline: 0845 603 0135.

The Inland Revenue will only stamp executed deeds.