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Trust

A trust is usually set up where assets (eg property, investments) are given by one person (the Donor) to another (the Trustees) with the intention that is should be applied for the benefit of a third party or the public (the Beneficiary). Once this occurs, the trustees own the asset, but can only apply it in accordance with the trust for the benefit of the beneficiaries.

A trust is not regulated by an external regulator (unless it is a charity), but is subject to various legislation, eg Trusts (Scotland) Acts 1921 and 1961 If it is charitable it will be subject to charity law and regulated by OSCR.

If you are considering setting up as a Trust and are planning to apply for charitable status, why not consider setting up as a single-tier Scottish Charitable Incorporated Organisation? This is a corporate body which provides limited liability for its trustees and is suitable for organisations that want to become charities, but do not want or need the complex structure of company law.

Advantages

  • Little or no set up costs.
  • Less administration than a voluntary association, SCIO, company limited by guarantee or IPS, since there is no register of members to maintain, no collection of subscriptions, etc.
  • No formal registration requirements unless a charity, which will be accountable to OSCR.
  • No detailed statutory procedures to be followed in relation to members’ meetings, etc.
  • Useful if you want to retain control amongst a small body of people with no external membership.
  • No requirement to notify changes in trustees to any public register nor any requirement to file accounts unless a charity.

Disadvantages

  • Although the law gives greater recognition to the trust (as compared with a voluntary association) as having some form of identity, it is still not a full legal “entity” in the way that a SCIO or company limited by guarantee is.
  • Leases/formal contracts have to be entered into in names of trustees. Each time one of these individuals leaves, the assets must be legally transferred to another. The same goes for any legal arrangements the trust has entered into in this way.
  • Legal proceedings cannot be taken by the trust but only by individuals representing it. Similarly, legal proceedings would be taken out against individuals rather than the organisation.
  • Trustees could be personally liable for debts if the organisation were unable to meet its debts and liabilities out of its own resources.
  • There is no concept of accountability to a wider membership or to partner bodies/agencies. In particular a trust could not hold meaningful AGMs since no one other than the trustees themselves would have voting rights.
  • Could be seen as “less professional” in the eyes of potential funders.

Likely to be less intimidating than a company limited by guarantee or IPS for those considering whether to participate in decision making.

How is it governed?

A trust is usually created by a document known as a deed. If a charity, the trust deed must be approved by OSCR.

Charitable status?

You may choose to set up a trust and register as a Scottish charity if the trust meets the criteria for being a charity. Equally, you can set up a trust without seeking charitable status.

Does it have a legal status, distinct from those who run it?

No. It’s an unincorporated body and those running it, the trustees, have personal liability for its debts and obligations. Trustees must undertake transactions on behalf of the body. Title to land and buildings must be held in the name of one or more individuals on behalf of the charity. Charity trustees may have personal liability for the charity’s actions and unlimited liability when it is wound up.

Write your constitution

You can download the SCVO model trust deed and use it as the basis for your own organisation’s constitution. Remember that your trust deed needs to be carefully drafted to reflect the aims which the trust will be pursuing in practice, and its activities.

This model reflects the features that are most commonly found in trust deeds in the voluntary sector. The remainder of the trust deed is drafted in such a way as to fulfil the normal requirements for a trust seeking registration as a charity. If you are pursuing charitable status, your steering group will be limited in how far you can depart from the model. Those areas are identified in the detailed clause-by-clause commentary set out below.

Clause by clause guidance

Follow our detailed clause-by-clause guidance on the model trust deed; find explanations of what the clause is there for, whether it is required by law, and information about decisions to be made between alternative possibilities.

Additional clauses

These are additional clauses you may want to use, again modelled on the most common variants within the sector. They cover such things as:

  • Appointment of trustees nominated by corporate and specified outside bodies
  • Appointment and removal of trustees

In practical terms, the question of who should be appointed as a trustee where a vacancy arises is left to the discretion of the remaining trustees. However you can use the trust deed to give an element of direction in making future appointments by including a requirement to ensure they reflect certain stated principles. Some suggested provisions are included here.

Forming the Trust

Consultation

You should circulate the first draft of your trust deed among the steering group so everyone has the opportunity to comment. A trust will be formed without necessarily involving the wider community. If it is felt appropriate that there should be some form of wider consultation, then it is up to your steering group to decide what form that should take. (Given that once the trust is formed, there would be no procedure for electing/re-electing trustees, it would not be particularly appropriate to hold a public meeting to elect the first trustees.)

Signing your trust deed

As and when the draft is finalised, the process of forming the trust simply involves the completion of the signing page of the trust deed, by inserting the number of pages in the document, excluding the signing page, and also the full name of the people (or bodies) named at the start of the trust deed as being the parties who are creating the trust. It should be noted that there is no need for a trustee to sign unless they are one of the people who are creating the trust.

Each of the people creating the trust should then sign on the last page of the document in the presence of one witness who should then sign opposite the signatures. Finally the signed document should be completed by inserting the place of signing (ie nearest post town), the date and the full name and address of the witness. If a corporate body is signing, you should follow the requirements in relation to the signing of a formal document which apply in relation to a body of that kind, eg in the case of a limited company, signatures of two directors, or one director plus company secretary, or one director or secretary plus witness.

Applying to OSCR

If the trust is pursuing recognition as a charity, a certified copy of the trust deed should be submitted to OSCR.

Keep a copy

Each of trustees should be given a copy of the trust deed for future reference, and a copy should also be sent to any accountant engaged by the trust.

In order to protect against the possibility of the trust deed being lost in the future, it would be advisable to register the trust deed in the Books of Council and Session. This is a public register which takes in important documents and issues official extracts; an official extract is treated as equivalent to the original signed document for legal purposes. There is a cost involved in this.

Page last modified on 31 March 2021

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The Scottish Council for Voluntary Organisations is the membership organisation for Scotland's charities, voluntary organisations and social enterprises. Find out more

© 2022. The Scottish Council for Voluntary Organisations (SCVO) is a Scottish Charitable Incorporated Organisation.
Charity registered in Scotland SC003558. Registered office Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh EH3 6BB.

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