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Charities And Gifts: Managing Permanent Endowment 12 February 2020

Charities are unique from a legal perspective and face many challenges when it comes to legislation - and permanent endowment is no exception.

All charities receive gifts where donors place certain constraints on how they can be used, which is why permanent endowments can be tricky for a charity, given they're not always straightforward or easy to identify and act upon.

Permanent endowments cover any land, investment or asset that belong to a charity and originally were intended to be held by the charity forever. These donations can usually only be managed by the trustees according to the restrictions placed on them by the donors.

"Assets of charities can be held in several different ways, and how gifts are held depends on the terms and restrictions the donors placed on them originally," explains Robin Burman at HLF Berry Solicitors' Chorlton office.

"There are different gift types, including buildings or land for certain uses or funds to be invested in a particular way, but with each and every gift the wording of the restrictions by the donor is key."

Permanent Endowment Stipulations

Donors are able to state exactly how they wish their gift to be held and used by a charity - which is why the wording is so important.

Words applied to gifts such as "indefinitely" and "forever", together with certain conditions, create permanent endowments for a charity with legally binding obligations on how they can keep and use the gift - sometimes, it can be as specific as the name the fund or asset must use.

What Happens When The Stipulations Are Unclear?

When gifts come with complex or unclear terms for a charity, it can be hard for the charity to identify permanent endowments.

Robin Burman adds: "It may be that a charity receives a gift which stipulates the income from the asset must be used in a set way but the terms don't clarify if the trustees can spend the capital or not - and this is why wording is of the utmost importance for charities.

"When donors place restrictions on a gift that are legally binding, they create something called trust property. This means the trustees of the charity are also trustees of the specific gift. This is different to assets as a charity is free to use assets as they see fit.

"Donors are often unaware that the restrictions they place on a gift can make it tricky for the charity to manage the asset in the best possible way.

"Of course, donors have the best intentions when they make a gift to a charity - they just need to be sure the words they use when they place restrictions on the gift are clear and conclusive.

"Sometimes, charities are able to use the Charities Act 2011 to spend permanent endowments or to gain the legal power to consolidate smaller endowment funds to achieve a better return and reduce administration costs. However, it's not always easy for a charity to actually apply these powers in reality.

"I'd recommend trustees to always seek advice if they're unsure if permanent endowments have been created or unclear on the specific stipulations placed upon a gift."

Why Wording Of Stipulations Is Key

Donors can state exactly how they wish their gift to be held and used by a charity - and certain stipulations and phrases will create a permanent endowment and legally binding duties on a charity with regard to the gift.

Our Charity Law team have a wide range of experience with assisting charities and not for profit organisations and we understand the challenges faced by charitable organisations as a result of industry specific legislation, compliance requirements and public scrutiny.

To speak to Robin Burman or a member of our specialist Charity Law team, please contact us at our Chorlton office on 0161 860 7123 or email chorlton@hlfberry.com