The role of the trustee in a charity

“The contribution of charities and other non-for-profit organisations is of crucial importance to both the economy and society. With key responsibility for governing and directing the organisation, the role of the Trustee has never been more important. Trustees play a vital role and must therefore be aware of all the obligations and challenges their duty entails”.

What is the legal definition of a Trustee and Charity?

A Trustee can be one of the following:

• A trustee of a charitable trust
• A director of a charitable company (usually limited by guarantee)
• A member of the management committee of a charitable unincorporated association
• A trustee of a charitable incorporated organisation (CIO)

While the law relating to charities is regulated by statute, the question of what is a charitable purpose is ‘a question of common law’, and according to Stroud’s Judicial Dictionary a charity can be defined as:

• ‘An organisation that is established exclusively for charitable purposes and subject to the control of the High Court in the exercise of the court’s jurisdiction with respect to charities.’ (Section 96(1) Charities Act 1993).

It should be noted that a charity is a status not a legal form or structure. There are various legal Structures that can be used for a Charity: Trusts, Unincorporated Associations, Companies Limited by Guarantee, Charitable Incorporated Organisation (CIO) and Industrial Provident Organisations. All these have different legal structures and the Trustee must be familiar with what each structure allows you to do. The IoD Business Information Service and the IoD Directors Advisory Service can help with questions on these structures.

Who can be a Charitable Trustee?

Anyone 16 and over (18 for an Unincorporated Association or Charitable Trust) who is not ‘disqualified’ can be a Trustee.

The reasons for disqualification were set down by the Charities Act 2011, and were designed to prevent people convicted of financial crimes, or who made serious financial errors, becoming trustees. In August 2018, the reasons for disqualification were expanded to include a number of reasons based on a serious breach of trust – these include being a registered sex offender or convicted terrorist. Importantly, since 01 August 2018 the concept of disqualification has also been extended to senior management positions in charities.

The reasons which disqualify a person from being a charity trustee are:

• Unspent conviction for an offence involving dishonesty or deception
• Unspent conviction for specified terrorism offences
• Unspent conviction for a specified money laundering offence
• Unspent conviction for specified bribery offences
• Unspent conviction for the offence of contravening a Charity Commission Order or Direction
• Unspent conviction for offences of misconduct in public office, perjury, or perverting the course of justice
• Unspent convictions for aiding attempting or abetting the above offences
• Being on the sex offenders register
• Unspent sanction for contempt of Court
• Disobeying a Commission Order
• Being a designated persons (under specific antiterrorist legislation)
• Being a person who has been removed from a relevant office
• Director disqualification
• Insolvency

The UK Government explains in detail who can and cannot be a charity trustee:

Automatic disqualification rules for charity trustees and charity senior positions

Role, Responsibilities and Liabilities of the Trustee

The Charity Commission, via Gov.uk, provides a thorough overview of the main duties of a Trustee alongside links to other useful guidance on the topic; this has been detailed below:

1. Ensure your charity is carrying out its purposes for the public benefit

This issue is discussed fully in the guide: The essential trustee – purposes and public benefit

“You and your co-trustees must make sure that the charity is carrying out the purposes for which it is set up, and no other purpose. This means you should:

• ensure you understand the charity’s purposes as set out in its governing document
• plan what your charity will do, and what you want it to achieve
• be able to explain how all of the charity’s activities are intended to further or support its purposes
• understand how the charity benefits the public by carrying out its purposes

Spending charity funds on the wrong purposes is a very serious matter; in some cases trustees may have to reimburse the charity personally”.

2. Comply with your charity’s governing document and the law

This issue is discussed fully in the guide: Your governing document and the law

“You and your co-trustees must:

• make sure that the charity complies with its governing document
• comply with charity law requirements and other laws that apply to your charity

You should take reasonable steps to find out about legal requirements, for example by reading relevant guidance or taking appropriate advice when you need to.

Registered charities must keep their details on the register up to date and ensure they send the right financial and other information to the commission in their annual return or annual update”.

3. Act in your charity’s best interests

This issue is discussed fully in the guide: The essential trustee – act in your charity’s best interests

“You must:

• do what you and your co-trustees (and no one else) decide will best enable the charity to carry out its purposes
• with your co-trustees, make balanced and adequately informed decisions, thinking about the long term as well as the short term
• avoid putting yourself in a position where your duty to your charity conflicts with your personal interests or loyalty to any other person or body
• not receive any benefit from the charity unless it’s properly authorised and is clearly in the charity’s interests; this also includes anyone who is financially connected to you, such as a partner, dependent child or business partner”.

4. Manage your charity’s resources responsibly

This issue is discussed fully in the guide: The essential trustee – manage your charity’s resources responsibly

“You must act responsibly, reasonably and honestly. This is sometimes called the duty of prudence. Prudence is about exercising sound judgement. You and your co-trustees must:

• make sure the charity’s assets are only used to support or carry out its purposes
• not take inappropriate risks with the charity’s assets or reputation
• not over-commit the charity
• take special care when investing or borrowing
• comply with any restrictions on spending funds

You and your co-trustees should put appropriate procedures and safeguards in place and take reasonable steps to ensure that these are followed. Otherwise you risk making the charity vulnerable to fraud or theft, or other kinds of abuse, and being in breach of your duty”.

5. Act with reasonable care and skill

This issue is discussed fully in the guide: The essential trustee – act with reasonable care and skill

“As someone responsible for governing a charity, you:

• must use reasonable care and skill, making use of your skills and experience and taking appropriate advice when necessary
• should give enough time, thought and energy to your role, for example by preparing for, attending and actively participating in all trustees’ meetings”

6. Ensure your charity is accountable

This issue is discussed fully in the guide: The essential trustee – ensure your charity is accountable

“You and your co-trustees must comply with statutory accounting and reporting requirements. You should also:

• be able to demonstrate that your charity is complying with the law, well run and effective
• ensure appropriate accountability to members, if your charity has a membership separate from the trustees
• ensure accountability within the charity, particularly where you delegate responsibility for particular tasks or decisions to staff or volunteers”.

Collective Responsibilities of Trustees

These can be summarised as follows by the following 2 points:

• Ensuring your charity is carrying out its purposes for the public benefit.
• Planning and reviewing your charity’s work on a regular basis

Ensuring your charity is carrying out its purposes for the public benefit

You and your co-trustees must make sure that everything your charity does helps (or is intended to help) to achieve the purposes for which it is set up, and no other purpose.

This means you should:

• ensure you understand the charity’s purposes as set out in its governing document
• plan what your charity will do, and what you want it to achieve
• be able to explain how all of the charity’s activities are intended to further or support its purposes
• understand how the charity benefits the public by carrying out its purposes Spending charity funds on the wrong purposes is a very serious matter; in some cases trustees may have to reimburse the charity personally.

Understanding the charity’s objects and powers – you should read the objects clause in your charity’s governing document and ensure you understand:

• what the charity is set up to achieve (its purposes)
• who the charity is there to benefit (its beneficiaries)
• how they will benefit (what the charity will do for or with them)
• any order of priority to the services and benefits the charity provides
• any restrictions on what the charity can do or who it can help (geographical or other boundaries; or specific criteria that beneficiaries must meet).

The objects might be quite broad and general, or they might be quite narrow, specifying what services or activities the charity can provide in order to achieve its purposes. The charity may have specific powers in its governing document. Charities also have powers from the Charities Act and other laws. You must only use these powers in ways that further your charity’s purposes.

Public benefit is essential to:

• charitable status – to be a charity an organisation must have only charitable purposes for the public benefit
• a charity’s operation – its activities must all be focused on carrying out the charity’s purposes for the public benefit
• a charity’s accountability – trustees must be able to explain how their charity’s activities are or have been for the public benefit This means that you should understand, and be able to explain:
• what the charity is set up to achieve – its purpose
• why the charity’s purpose is beneficial – this is the ‘benefit aspect’ of public benefit
• how the charity’s purpose benefits the public or a sufficient section of the public – this is the ‘public aspect’ of public benefit
• how the charity will carry out (or ‘further’) its purpose for the public benefit

Planning and reviewing your charity’s work on a regular basis

You and your co-trustees are responsible for deciding and planning how your charity will carry out its purposes. All charity trustees should, therefore, decide together what activities the charity will undertake, and think about the resources it will need.

Trustees of larger charities should take responsibility for setting the charity’s strategic aims and direction, and agreeing appropriate future plans. Involving the charity’s staff, volunteers and others with an interest in the charity in the planning process can be helpful. As part of your planning process, you should work out what funds and other resources the charity will need and where it will get them.

You and your co-trustees should periodically review what the charity is achieving, and how effective the charity’s activities are. Thinking about the difference your charity makes may help you to explain more clearly how it benefits the public. It may also help you to decide whether it could be more effective in carrying out its purpose by changing what it does.

Hallmarks of an Effective Charity

According to the Charity Commission these are:

• Being clear about its purposes and direction. An effective charity is clear about its purposes, mission and values and uses them to direct all aspects of its work.

• Having a strong board. An effective charity is run by a clearly identifiable board or trustee body that has the right balance of skills and experience, acts in the best interests of the charity and its beneficiaries, understands its responsibilities and has systems in place to exercise them properly.

• Being fit for purpose. The structure, policies and procedures of an effective charity enable it to achieve its purposes and mission and deliver its services efficiently.

• Learning and improving – An effective charity is always seeking to improve its performance and efficiency, and to learn new and better ways of delivering its purposes. A charity’s assessment of its performance, and of the impact and outcomes of its work, will feed into its planning processes and will influence its future direction.

• Being financially sound and prudent. An effective charity has the financial and other resources needed to deliver its purposes and mission, and controls and uses them so as to achieve its potential.

• Being accountable and transparent. An effective charity is accountable to the public and others with an interest in the charity in a way that is transparent and understandable.

Maintaining relationships for board competence

It is important for a trustee to develop relationships with executive management, beneficiaries and members of the charity. According to ‘The Good Trustee Guide’ by the NCVO, there are 6 key areas of Board Competence as follows:

Contextual – Understanding of the Board’s Mission and Environment.

Educational – Continue to learn and evaluate your own performance.

Interpersonal – Do not let strong personalities dominate the Governance process – encourage group decision making instead.

Analytical Skills – cultivate these by taking a step back and take the long term view.

Political – Maintain good relationships among members, volunteers, clients, government agencies and community groups.

Strategic – Take responsibility for the organisation’s long term success or failure.

The National Occupational Standards for Trustees by Laurance and Cornforth gives a more detailed account of good corporate governance in the Voluntary sector in general.

Trustee Accountability and Liability

Trustees are individually accountable to the donors (both private and public), regulators (e.g.  Charity Commissioners and Companies House -depending on legal structure), members (if a membership organisation), beneficiaries, partners, employees (including volunteers) and the general public because of the favoured tax status that charities enjoy.

The practical aspects of accountability are as follows:

• Ensure that the organisation follows Equality and Diversity Law
• Communicating with donors on the use of the charity’s funds
• Ensure that staff are accountable to their managers and managers are accountable to the Board by establishing reporting lines.
• Comply with regulatory requirements e.g. Charity Commissioners and Companies House (in the case of a company limited by Guarantee)
• Involving members in the Annual General Meeting where they can elect the Board and pass motions or resolutions.
• Produce an Annual Report for members and the public in general.

Trustee’s personal liability is as follows:

• Breach of Trust e.g. spending money which is outside the scope of the charity.
• Acting as Trustee when disqualified
• Failure to comply with statutory requirements e.g.. Health and Safety and Financial Services legislation.
• Failure to deduct an employee’s PAYE.
• Liability for the Charity’s debts in the case of a trust or unincorporated association.

However, in certain instances Trustees can apply for relief to the ‘Charities Commission’ if they have acted ‘honestly and reasonably’.

What Trustee’s should know about Charity legislation

Charity Trustees should ensure they have a general awareness of the legislation that governs charities in the UK.

The Charities Act 2011 incorporates most previous legislation. It came into force on the 4th March 2012.

However, sections of the following previous Charities Acts still apply:

• Section 45: Charities Act 2006
• Section 58 Charities Act 1992
• Section 75 Charities Act 1992

The Finance Act 2010 introduced a new definition of charity for the purposes of tax legislation.

How can the IoD further help Charity Trustees in their role?

The IoD Directors Advisory Service can help you with questions about the legal or financial aspects of running a charity.

Related resources and courses

The IoD’s professional development courses and qualifications are the gold standard for board-level competency. Designed by directors for directors, they will equip you with the practical know-how you need to succeed.

Call our training team on +44 (0)20 3855 4309 for more information or view our courses here.

© Institute of Directors. All rights reserved.