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| The law |
Refer to a lawyer |
Refer to an accountant |
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1. Donor's or testator's intentions |
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People who give or leave money to charities do not usually specify whether their donation or legacy should be treated as income or as permanent or expendable endowment. If any evidence of the donor's or testator's intention does exist, the charity must treat the gift or legacy accordingly. |
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Where the formal terms of a gift are silent as to how it should be treated, the first thing to consider is any informal indications of what the donor had in mind. For example: |
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- any indications expressed by the donor in correspondence with the trustees, or with their advisers, or with the donor's own advisers, or which may be recorded in interview or telephone memoranda;
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- if the gift was in response to a public appeal, the terms of that appeal.
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2. Circumstantial evidence |
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If there is no direct evidence as to what the donor had in mind, circumstantial evidence may be relevant. For example, the size of the gift in relation to the size of the charity - the larger the relative size of the gift, the more likely that the donor intended it to be treated as endowment. |
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It might be reasonable to assume that the donor: |
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- would not have expected a small charity necessarily to spend promptly a sum of money substantially greater than its normal outgoings; but
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- would have expected the charity to invest the gift as expendable endowment and use the income, unless and until the trustees chose to embark on some major project on which the endowed funds could reasonably be spent.
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The trustees of some charities which regularly receive donations of various sizes have a rule of thumb under which gifts below £x are assumed to have been intended as income and gifts above £x are assumed to have been intended as expendable endowment. There is no objection to this, provided that the figure selected is rational in the circumstances of the particular charity, and provided, of course, that proper regard is paid to explicit evidence of the donor's intention where such evidence does exist. |
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It might also be possible to infer the basis upon which the donor intended a gift to be held from the nature of the property given. For example, a work of art given to an art gallery without any specific indication of the trusts attaching to the gift is likely to have been intended as an endowment, rather than as something which could be converted into expendable income by sale. |
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Where the trustees of a charity have decided that a gift should be treated as an addition to endowment there should be a note in the accounts. (Paragraph 41 of the Exposure SORP (December 1999) provides for the initial gift and all subsequent increases and decreases in the amount of any endowment funds to be distinguished in the charity's Statement of Financial Activities.) |
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If a gift is to be treated as endowment, any tax recovered by the charity (under gift aid or as a covenant) should also be regarded as endowment. |
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You should seek accountancy advice and, if necessary, legal advice as to the legitimacy of such decisions in the context of the accounts. |
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3. No evidence, either direct or circumstantial |
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If there really is no evidence, either direct or circumstantial, as to the donor's intention, then the gift should be applied as income consistently with the terms of the charity's governing document in a way the trustees think will benefit the charity. |
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You should ask Legal Division for advice in any case where it appears that trustees are treating, or proposing to treat, a gift in a manner which is not consistent with what the donor had in mind. |
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