Can You Take Money Out of a Charitable Trust? Here’s What Really Happens

People often ask if they can take money out of a charitable trust like it’s a personal bank account. The short answer? No. Not unless you’re the trustee acting within strict legal boundaries, and even then, you can’t pocket the cash for yourself. Charitable trusts aren’t designed for personal gain. They’re locked-in tools meant to serve a public good - and the law makes sure of it.

What Is a Charitable Trust, Really?

A charitable trust is a legal structure where someone (the donor) gives assets - cash, property, stocks - to a trustee, who then manages those assets to benefit a charity or cause. The donor doesn’t own the assets anymore. The trust does. And the trust’s only job is to use those assets for charitable purposes, as defined in its founding documents.

Think of it like this: if you give $50,000 to a trust to fund after-school programs for kids in Melbourne, that money isn’t yours to spend on a vacation or a new car. It’s locked in. The trustee can’t just write themselves a check. They have to spend it on tutoring, supplies, or staff salaries for those programs.

There are two main types: charitable remainder trusts and charitable lead trusts. Both are complex, but they share one core rule: the charity must benefit. Not the donor. Not the trustee. Not anyone else.

Can the Trustee Take Money Out?

Trustees get paid - but not from the charitable fund itself. In Australia, trustees of charitable trusts are allowed to receive reasonable compensation for their time and expertise, but only if the trust deed specifically allows it. Even then, that payment comes from administrative fees or separate income generated by the trust’s investments - not from the principal donated to help others.

For example, if a trust holds $1 million in stocks that earn $40,000 in dividends each year, the trustee might get $10,000 as a management fee. That $10,000 is drawn from the income, not the $1 million. The $1 million stays intact to fund the charity’s work.

If a trustee tries to take money directly from the trust’s principal - say, $50,000 to pay off their mortgage - that’s not just unethical. It’s fraud. The Australian Taxation Office (ATO) and courts treat this as misappropriation of charitable funds. Penalties include fines, removal as trustee, and even criminal charges.

What About the Donor? Can They Get Their Money Back?

Once you put money into a charitable trust, it’s gone. Permanently. There’s no refund button. That’s the whole point. Charitable trusts are irrevocable by design. You give up control to ensure the money stays dedicated to the cause.

There are rare exceptions. If the original charity no longer exists or the purpose becomes impossible to fulfill (like funding a specific school that shuts down), a court might allow the trust to redirect funds to a similar cause. But even then, the donor doesn’t get the money back. The funds go to another nonprofit with a matching mission.

Some people confuse charitable trusts with donor-advised funds (DAFs). DAFs let you recommend grants to charities, and you can sometimes withdraw contributions - but only if you change your mind before the grant is made. Once the money leaves your DAF and goes to a charity, it’s final. Charitable trusts don’t even offer that flexibility.

What If the Trust Needs Cash for Operating Costs?

Charitable trusts can and do spend money to run themselves - but only if it’s necessary and reasonable. That includes legal fees, accounting, insurance, or hiring staff to manage grants. But again, this money comes from investment income or designated administrative budgets, not from the core charitable fund.

For example, a trust set up to provide food parcels to homeless families might earn interest on its $200,000 endowment. That interest pays for delivery vans, warehouse rent, and a part-time coordinator. The $200,000 stays untouched. Every dollar of it goes to groceries.

If the trust runs out of income and can’t cover basic costs, it doesn’t get to dip into the principal. Instead, it may need to raise more donations, apply for grants, or - in extreme cases - dissolve and transfer remaining assets to another charity.

What Happens If Someone Breaks the Rules?

Breaking the rules of a charitable trust isn’t a gray area. It’s a legal violation. The ATO, state regulators, and beneficiaries (like the charities named in the trust) can take action.

Real cases have happened. In 2022, a trustee in Sydney was found to have used $180,000 from a trust meant for Indigenous youth education to buy a luxury car and fund overseas travel. The court removed them, ordered full repayment, and referred the case to police. The trust’s assets were transferred to a new trustee, and the charity received the full amount.

Even unintentional mistakes can trigger audits. If a trustee pays themselves too much, uses trust funds for personal events, or invests in risky assets that lose money, they can be held personally liable. That means their own savings, home, or future income could be at risk.

Alternatives If You Want More Control

If you want to give to charity but still keep some flexibility over your money, a charitable trust isn’t the right tool. Try these instead:

• Donor-Advised Funds (DAFs): You contribute money, get an immediate tax deduction, and recommend where it goes over time. You can pause or change grants - but once the money leaves your DAF, it’s gone.
• Private Ancillary Funds (PAFs): These are like mini-charities you control. You can make grants over time, and even pay yourself a small salary as trustee. But you still can’t withdraw the principal for personal use.
• Direct donations: Give cash or assets directly to a registered charity. You get the tax benefit, and you retain full control - until you hand over the money.

None of these let you take money back after the fact. But they offer more breathing room than a charitable trust.

Why Do People Still Set Up Charitable Trusts?

Because they’re powerful. A charitable trust can last forever. It can grow over decades through smart investing. It can fund a cause long after the donor is gone. A trust set up in 1985 to support mental health services in regional Victoria might now be worth $5 million - and still giving out $200,000 a year.

It’s not about control. It’s about legacy. You’re not keeping the money. You’re making sure it keeps working for people who need it, long after you’re gone.

If your goal is to help others and leave a lasting impact, a charitable trust is one of the most effective tools available. But if you’re hoping to keep access to the cash, you’re using the wrong tool. And trying to bend the rules won’t work - the law is clear, the penalties are real, and the public expects integrity.

Final Thought: It’s Not Your Money Anymore

When you create a charitable trust, you’re making a promise. Not just to the law, but to the people who will benefit. That money isn’t yours to spend. It belongs to the cause. And once it’s in the trust, it’s no longer yours to take out - no matter how much you might want to.