As the COVID-19 pandemic has swept across the globe, the stock market has become increasingly volatile, meaning that a number of charitable trusts have seen a drop in both the value of their investments and the income being generated by them.
Simultaneously, whilst charitable giving generally has increased across the UK, a number of smaller charities are reporting an increase in demand combined with a significant drop in support/donations. This is particularly the case where the charity would normally rely on high-profile public events to raise funds.
At a time of increased demand, many trusts who traditionally rely solely on income to distribute donations have been hit hard and have had to reduce their donations accordingly. Investment managers have forecast that trusts should expect a reduction in their income from investments over the next few years as the market recovers and should act with caution. So, how can charitable trusts combat this and ensure that they continue to meet their overarching charitable objectives? Depending on the provisions of the governing document, charitable trusts may be able to make donations to charities from capital held by the trust or from income generated through shareholdings, or from both. As such, it may be that all that is required is a change of perspective by the trustees. For example, not all sectors have been adversely affected by the pandemic and indeed some have thrived, meaning that it may be an appropriate time to take some profit from the investment portfolio (subject, of course, to suitable professional advice).
If the constitution provides the power to do so, it is possible to amend the constitution to allow for changes to distribution methods. Trustees could amend the constitution to allow for distributions to be made from both capital and income to aid cash flow. Once amended, the trustees must notify charity regulator OSCR in writing of the changes within three months. This process can be fairly quick and smooth. The trustees can also take the opportunity to update any other provisions which are perhaps outdated or administratively burdensome, provided they maintain the overarching spirit of the constitution.
If, on the other hand, the constitution does not provide the requisite powers to make amendments, trustees are required to apply to OSCR using an "Application for Approval of a Charity Reorganisation Scheme" form. Reorganisation is a means to vary the terms of the trust's constitution. This includes terms in relation to distributions from capital and income. Applications to reorganise can take an average of six months to complete.
Trustees may also wish to consider changing their charitable purposes to ensure that they are able to assist during the pandemic. Again, OSCR consent will be required.
OSCR has helpfully indicated that, where an application form is submitted in relation to COVID-19, this should be clearly marked on the form to allow them to prioritise the application.
As it is difficult to predict when the stock market will recover from the effects of the pandemic, charitable trusts should act with caution and ensure that they have the means by which to make donations in a time of hardship.
A special thank you to Christie Jamieson, trainee, who contributed to this article.