Sleeping bounty

Everyone has heard of great Scottish philanthropists like Andrew Carnegie, William Quarrier, and their modern day equivalents such as Sir Tom Hunter.  However, these are only the best known of thousands of men and women who over the years have established charitable trusts to support good causes.

These trust funds are often administered by Scotland’s 32 councils, who inherited their responsibilities as trustees from predecessor authorities. Unfortunately, over the years many of these trusts have become inactive and it is often difficult to distribute funds in line with the wishes of the original benefactors.

Untapped resources

Research conducted by the Scottish Community Foundation shows that in 2006-07, Scottish local authorities distributed almost £2.5m to good causes from charitable trusts. However, in the same year these trusts generated almost £2m of income that was not distributed. Of course, this is not just an issue for public bodies. Many solicitors in private practice may be experiencing similar difficulties where charitable trusts for which they are trustees have become dormant or inactive.

Charitable trusts may become dormant for a variety of reasons. The original purposes may have ceased to exist or have been fulfilled, or the terms of the trust may simply be no longer relevant, though the trusts still have surplus or residual funds. These “sleeping” assets could be put to good use by providing support to local charities and community organisations.

New opportunity

Thanks to the Charities and Trustee Investment (Scotland) Act 2005, there is now a way of releasing these funds. The Act introduced provisions for charities to make changes to their constitutions, including reorganising their objectives, with the approval of the Office of the Scottish Charity Regulator. This means that the objectives of charitable trusts can be changed to make them more relevant to the current needs of community and voluntary organisations, while respecting the spirit of the original benefactors.

Section 39(1) states that a reorganisation scheme needs to lead to a certain kind of result, before it can be approved by OSCR. If the current purposes are in some way no longer relevant, useful or appropriate, the scheme must “enable the resources of the charity to be applied to better effect for charitable purposes consistently with the spirit of its constitution, having regard to changes in social and economic conditions since it was constituted”.

• The Act offers five possible ways in which the current purposes of a charity may no longer be appropriate: s 42(2)(a) and (b). These are:
• That some or all of the charity’s purposes have been fulfilled as far as possible, or adequately provided for by other means.
• That some or all of its purposes can no longer be given effect to (whether or not in accordance with the directions or spirit of its constitution).
• That some or all of its purposes have ceased to be charitable purposes.
• That some or all of its purposes have ceased in any other way to provide a suitable and effective method of using its property, having regard to the spirit of its constitution.
• That its purposes provide a use for only part of its property.

The Charities Reorganisation Regulations 2007, which give effect to ss 39-43 of the Act, were introduced in May 2007 and OSCR issued guidance last October about the procedures to be adopted to apply for a reorganisation.

The SCF scheme

The Scottish Community Foundation has recently launched an initiative to make it easier for funds held in inactive charitable trusts to be distributed to local community organisations. SCF currently manages 250 individual charitable funds, including £6m in endowments. This allows us to award almost £3.5m a year in grants to community and voluntary groups across Scotland. Our expertise in grant making is recognised by The Big Lottery Fund, Comic Relief and the Scottish Government, all of whom use SCF’s services to deliver key programmes that target funding at grass-roots community activity in Scotland.

SCF wants to build on this expertise, working in partnership with local authorities and others, including solicitors acting as trustees for charitable trusts, to release funds currently sitting in dormant or inactive trusts. Our aim is to use the assets released from reorganising dormant trust funds to establish revitalised and sustainable community funds across Scotland which will provide much needed additional funding for local community and voluntary organisations. These new community funds will have objectives relevant to the needs of local communities in the 21st century, while respecting the charitable aims of the original benefactors.

Once established, these community funds would also provide a mechanism that would allow organisations and individuals wishing to support charitable causes to direct their money towards local community and voluntary organisations. In other words, today’s philanthropists can form a partnership with their counterparts from the past to benefit local communities today and for future generations.

Giles Ruck, Chief Executive, The Scottish Community Foundation

About the Scottish Community foundation

For more information about SCF’s work in general or about reorganising dormant charitable trust funds, see www.scottishcf.org or contact giles@scottishcf.org or tel 0131 524 0300