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Trusts and Foundations: What’s the Difference?


Trusts and foundations have huge influence over a charity’s future success. They support certain endeavours by providing funds, making them crucial resources for organisations seeking financial gain.


It is very easy for people to confuse foundations and trusts with one another. But, in order to appeal to such important bodies and secure major funds - it is essential to first understand their differences. In this blog, we will talk you through the key contrasts between trusts and foundations.


What are Trusts and Foundations?

Trusts and foundations are entities with a private, sustainable income. According to Culture Hive, in the UK, there are 8,800 bodies that give around £2.7 billion to charities per year. They do this to support charitable individuals and organisations in achieving their goals.


Foundations and trusts do share a lot of similarities - especially in the way they offer grants. They decide independently who to support, with no influence from political priorities or socioeconomic trends. They do this by considering how they want to benefit the community, with a focus on whether or not it aligns with their own priorities.


The terms ‘trust’ and ‘foundation’ are mainly mixed up because they do largely the same work. However, the main difference between the two is relatively easy to remember. Let’s take a closer look at what these are.

The Differences Between Foundations and Trusts

When it comes to foundations and trusts, the key difference lies in their legal status and constitution:

Trusts

With a trust, this is a specific legal entity. A trust is formed when the legal owner of assets (the settlor) transfers legal ownership of those assets (the trust property) to individuals or an organisation (the trustee), typically for the benefit of certain people.


Once a trust is established, the legal ownership of the trust property will be bestowed onto the trustee, and the beneficial ownership of the property will belong to the beneficiaries.


This is usually done for charitable purposes, such as The Wellcome Trust, which was established in 1936 as an independent charity funding research to improve human and animal health. The aim of the Trust is to “achieve extraordinary improvements in health by supporting the brightest minds”.


The below image by Asset Protection displays the way Trusts work in a simple yet effective way:

what is a trust graphic
How a Trust works. Image credit: Asset Protection

Foundations

With a foundation, this can be a trust or a company. The vast majority of foundations are also registered charities, but it is important to recognise that not all may be so. To add further confusion, not every charity called a trust gives out grants (such as National Trust) and likewise - not every grant giving charity is called a trust.

As such, ‘Foundation’ is probably the more common term given to a grant making body. They generally fit into two categories: private non-operating foundations and private operating foundations. Private non-operating foundations disperse their funds into other charitable organisations. Private operating foundations run the organisations or charities that they fund with the income from their investments.


The image below, sourced from Asset Protection, provides a handy overview of the way foundations work:


what is a foundation graphic
How a Foundation works. Image credit: Asset Protection

Trusts and foundations also come in various forms and with different funding priorities. Some focus on giving to a particular type of organisation; others on particular themes; others still have a more general remit. Many will also give only within a specific geographical area, while others give nationally.

What Kind of Funding Do They Offer?

Trusts and foundations provide many different types of funding, including:

  • Kickstart funding: to get a project off the ground

  • Revenue funding: to cover running costs, including salaries

  • Capital funding: to pay for building costs or equipment

  • Project funding: to pay for a mixture of items within a project budget, sometimes including a contribution toward overhead and management time

  • Long-term funding: to provide funding over a number of years

If you’re considering applying for funding, it is wise to know what exact type of funding you need in order to better align your goals with the grantmaker.


How Can a Charity Secure Funding?

A general rule is that a smaller number of well-researched and tailored applications will be more successful than a blanket approach of sending out a generic letter to a larger number of trusts or foundations.


Your main objective in any application is to show how your project can help the funder achieve their purpose. Research, selection of the appropriate funding opportunity and a clear project outline are also vital when making an application to a trust or foundation.


When applying, always remember to:

  • Communicate confidently and concisely, showcasing accuracy and passion in your past and future efforts

  • Check the Trust’s funding cycle to ensure plenty of time before any application deadlines

  • Trusts are often prepared to take a risk on new projects but are frequently conservative - try to think from their perspective

Since launching in 2013, S3 Solutions has worked tirelessly to provide useful, reliable, high quality information and services to our clients. Our dedicated and committed team of consultants bring more than 100 collective years of experience across both the third and public sectors, meaning you can trust our expertise to help you further your potential.


If you would like more information, or would like to hear more about the services we offer, please check out our blog page or get in touch with the team today.