Can a Charitable Trust Invest? Smart Ways to Grow Your Good Deeds

Here’s something that surprises a lot of people: charitable trusts aren’t just about handing out donations. They can invest, and in fact, smart investing is one of the best ways to make a trust’s money go further for good causes. Think of it like planting a tree rather than just handing out all the apples at once—if managed right, the tree (your trust) keeps producing more fruit every year.

But it’s not as simple as buying a bunch of stocks or betting it all on crypto. There are rules, risks, and responsibilities. If you’re a trustee, you can’t just follow your gut or copy a friend’s portfolio—you’re supposed to act in the trust’s best interest, which sometimes means playing it safer than you might with your own money.

So, if you’re wondering if your charitable trust can invest, the short answer is yes, but you need to know how to do it without breaking any rules or putting the trust’s mission at risk. You want those good intentions to last, don’t you? Let’s lay out what you need to know before making any investment moves.

• What a Charitable Trust Can Actually Do
• Investment Options for Charitable Trusts
• Regulations and Must-Follow Rules
• The Risks (and How to Keep Out of Trouble)
• Real-Life Tips for Trustees and Donors

What a Charitable Trust Can Actually Do

People often assume a charitable trust just gives out cash or pays for projects. They do a lot more. First, a charitable trust collects assets—this could mean money, property, shares in a company, or even art. These assets are set aside for a cause, like helping children go to school or funding medical research.

Trustees have two main jobs: protect the trust’s assets and use them to meet the trust’s purpose. That includes making sure the money doesn’t just sit there losing value. Instead, trustees can make the trust’s funds work harder by investing them. This way, the trust can keep supporting its cause year after year, not just one time.

A charitable trust can:

• Give grants or scholarships to individuals or groups connected to its mission
• Fund specific projects or provide ongoing support to organizations
• Invest in stocks, bonds, real estate, or other permitted assets to generate extra income
• Manage property or businesses as long as profits help the trust’s charitable goals

In the UK and the US, the law encourages trusts to invest their money—responsibly, of course. For example, a survey from the National Philanthropic Trust in 2023 found that over 65% of US-based charitable trusts are using investment portfolios to help increase their annual payout to charities.

One thing trustees can’t do: just hand out assets however they like. Every action has to line up with the trust’s stated mission. So, if the trust is set up to help rescue dogs, the money can’t suddenly go to soccer teams—even if someone makes a convincing case. Clear rules keep things fair and on track.

Investment Options for Charitable Trusts

Most people don’t realize how much choice a charitable trust really has when it comes to investing. The goal is usually to grow the trust fund safely, so the trust can keep supporting its chosen charities for years—not just blow through cash in one go. So, what can a charitable trust actually invest in? Let’s break it down.

• Stocks and Bonds: These are the bread and butter for most trusts. Stocks can help grow the trust’s money faster, while bonds help keep things steady—even when the stock market gets rocky. A good mix helps keep rewards and risks balanced.
• Mutual Funds and ETFs: These let a trust put its eggs in a bunch of baskets at once. Mutual funds and exchange-traded funds (ETFs) pool cash from lots of investors and spread it around different companies or industries. Lower risk, but still the potential for growth.
• Real Estate: Some charities get creative, buying properties that bring in steady rental income. It’s a way to earn more for the trust without having to rely only on the stock market.
• Fixed Deposits and Savings Accounts: If you need to play it super safe—maybe for short-term money you know you’ll need soon—trusts can just park some cash in the bank. The returns aren’t huge, but the risk is close to zero.
• Impact Investments: This is a cool option for trusts aiming to do good and grow their funds at the same time. Impact investments target businesses or projects that create positive change—like renewable energy—alongside making a profit.

Here’s an interesting bit: according to the UK Charity Commission, about 2 out of 3 UK charities with investments put their money in some mix of stocks, bonds, and mutual funds in 2023. Pretty clear where the action is.

Whatever options you go for, here’s the catch: every investment should match the trust’s rules and the charity’s long-term plan. Trustees are supposed to review investments regularly—in some places, at least once a year. So it’s not a “set it and forget it” deal.

Bottom line: when it comes to charity investments, mix it up, stay smart, and never forget why the money’s there in the first place. Safe growth beats flashy risks every time if you’re thinking long-term for your cause.

Regulations and Must-Follow Rules

Before a charitable trust starts investing, there’s a bunch of legal stuff you can’t ignore. Trustees have a duty called the “prudent investor rule.” This basically means you have to act like a careful, smart investor would with someone else’s money, not your own wild bets. Break this rule and you’re not only wrecking the trust’s finances—you could land in hot water legally.

Let’s get clear on the main guidelines:

• Your trust document is the rulebook. If it says no investing, then you can’t, simple as that. If it lets you invest, you have to follow any limits it gives—like no risky junk bonds, for example.
• Every state (and country) has its own laws for these things. In the U.S., most states use something called the Uniform Prudent Investor Act (UPIA). This law tells trustees to diversify—meaning spread out the money across different types of investments. No putting all your eggs in one basket here.
• Trustees must always put the beneficiaries’ and charity’s needs first, not their own interests. Any decision should aim to keep the trust safe and growing for the long run.
• Some types of investments are totally off-limits or require special steps. For instance, you probably can’t go buy real estate in another country or gamble on high-risk derivatives.
• If your trust is tax-exempt, you have to watch out for something called “unrelated business income tax” (UBIT). If you make money from something not related to your charity’s mission, the IRS can tax it—even if you’re a charity. Tricky, right?

Here’s a quick look at what most U.S. states expect trustees to follow:

Skip any of these steps and you risk losing the charitable trust's tax benefits or even getting sued. Not a situation anyone wants.

The Risks (and How to Keep Out of Trouble)

Diving into investing with a charitable trust isn’t all smooth sailing. There are some risks that can really mess things up if you’re not careful. If you ignore these, you could land the trust—or even yourself—in legal hot water, upset donors, or even risk the trust’s tax-free status. Here’s what you want to keep in mind.

Market Risk is the big one. Just like anyone else investing, the trust’s money can lose value if the stock market takes a dive or if you pick bad investments. Unlike an individual, though, a trust’s job is to make sure there’s enough money to support its mission long-term. Losing half your assets just because you got too risky with tech stocks is a nightmare scenario for a trustee.

Then there’s liquidity risk. Imagine if your trust has all its money locked in property or non-traded investments, but you need cash fast to pay out grants or emergency needs. Illiquid assets can tie your hands, which is a huge problem for a charity that needs flexibility.

Regulatory risk comes from missing out on the rules that apply specifically to charitable trusts. For example, in the UK, trustees must follow the Trustee Act 2000, which says you have to think hard about what’s a “suitable” investment. In the US, most trusts must follow the Uniform Prudent Investor Act, which pushes for a careful, reasoned approach. Break the rules, and you could be personally liable.

Let’s not forget about reputation risk. Donors and the public are watching. If word gets out that your trust lost a pile of money gambling on risky stuff, or made investments that conflict with the charity’s mission (like a health charity investing in tobacco stocks), fundraising could absolutely tank.

• Tip: Many trustees use something called an Investment Policy Statement (IPS). This is a document that spells out how the trust will approach investing, including what it can and cannot buy, and how much risk is okay. Think of it as your “no excuses” rulebook.
• Tip: Diversify. Don’t sink all your money into one pot. Use a mix of cash, bonds, and stocks to balance out risk.
• Tip: Document every decision you make. If things go sideways, you need proof that you acted with care and thought things through.
• Tip: Keep an eye on changing laws. Rules around what charitable trusts can invest in aren’t static—they can (and do) change.

Bottom line: if you’re managing a trust fund for charity, make every investment decision like the stakes are high—because they really are. That’s how you keep out of trouble and keep those good deeds going for the long haul.

Real-Life Tips for Trustees and Donors

If you’re running or supporting a charitable trust, solid real-world advice can make all the difference. Here’s what actually works (and what you shouldn’t skip):

• Know the Investment Policy: Every charitable trust should have what’s called an investment policy statement. This game plan spells out what the trust can invest in, how much risk is okay, and who’s allowed to call the shots. If your trust doesn’t have one, that’s your first red flag.
• Diversify Like a Pro: Don’t pile all your eggs into one basket—seriously. UK Charity Commission and IRS guidelines stress that trustees need to “consider the suitability of investments” and spread things out to manage risk. This means mixing things up between stocks, bonds, even real estate or social enterprises—whatever fits your purpose.
• Stay on the Right Side of the Law: Trustees have a “fiduciary duty”—which is just a fancy way of saying you must make choices that put the trust’s best interests first. Screw this up and you could face legal trouble. If you’re not sure, ask a pro—lots of firms offer advice tailor-made for charitable trust investing.
• Keep Records of Everything: Don’t rely on your memory or a shoebox full of receipts. Track all decisions, meetings, and investment changes. Auditors expect solid paperwork, and it makes sorting things at tax time way easier.
• Check Performance Regularly: Don’t set-it-and-forget-it. At least yearly, look at how your investments are doing. Compare your returns to market averages. For example, most charities aim for 4-5% growth per year, net of costs—otherwise, funds might not even keep up with inflation.

Want to see how disciplined investment pays off? Here’s a quick look at how charities have used investing to support more causes:

*Source: UK Charity Finance Group Annual Investment Report 2024

One last thing—trustees should always talk with donors about transparency. Donors feel more comfortable when they know exactly how money is used and invested. It’s not just about paperwork—is your charitable trust living up to its mission? That’s what really counts.