Permanent endowment meaning

Unrestricted funds—general use of assets The overarching rule for applying a charity’s assets is that, unless a specific restriction applies, both income and capital should be used to further the charity’s purposes and to deliver public benefit. Even where funds are classed as unrestricted, there may still be constraints on spending income and capital on the charity’s assets, typically set out in the charity’s constitution. Constitutions may impose conditions on distributing income, on carrying income forward for use in later years, or on accumulating it and converting it into capital. Limits on distributing capital may likewise be specified in the constitution. Where the constitution is silent, the usual expectation is that trustees will, as a minimum, distribute income and have discretion to distribute capital. Funds that are not unrestricted generally fall into three main types: designated funds (which are truly a subset of unrestricted funds) restricted funds (which, generally speaking, include the misnamed category of expendable endowments) endowments (sometimes also referred to as permanent,...

FORTHCOMING CHANGE: Royal Assent for the Charities Act 2022 (CA 2022) was granted on 24 February 2022, and, as set out in the Charities Act 2022: implementation plan, its provisions are scheduled to take effect in three defined groups over three phases, namely as follows: on 31 October 2022, on 14 June 2023, and in ‘early 2024’. For an overview of the CA 2022 provisions brought into force so far, see: Charities Act 2022: information about the changes being introduced. The Act gives effect to most of the recommendations in the Law Commission’s 2017 report, ‘Technical Issues in Charity Law’. For a summary (as at 9 April 2021) of those recommendations that have been accepted by government, see News Analysis: Government response to Law Commission report ‘Technical Issues in Charity Law’. Matters most relevant to this Practice Note concern reforms on permanent endowments, which aim (a) to clarify the meaning of permanent endowment, (b) to tackle difficulties arising from differing legal interpretations of the current definition and (c) to...

Charity trustees exercise authority sourced from several places: the express terms of the charity’s governing document, the Charities Act 2011 (CA 2011) and other legislation, and from common law and statutory principles arising from the charity’s nature as a legal person and as an entity in its own right. All such powers must be used only to advance the charity’s objects and to preserve its assets; where trustees apply a power for some other end, or act in a way that is not in the charity’s best interests, the decision may, if intentional, be a ‘fraud on a power’, or otherwise a negligent (or inadvertent) breach of trust for which the trustees could be held personally liable. Powers and the charity format The character of the charity itself may determine, in part, the range of powers open to the trustees, and therefore be relevant to what they can properly do...