How to set up a charitable trust 09 Oct 2016

So you have a great idea that just might make a difference in the world, but are wondering about how to formalise a legal structure that would help you do that?  A charitable trust is one of the most commonly used options in New Zealand.  This article describes the steps to set up a charitable trust and key points to consider.

Advantages of a charitable trust

A charitable trust can provide a number of advantages.  For example:

Great examples of charitable trusts in New Zealand include World Vision, The New Zealand Breast Cancer Foundation, and Ronald McDonald House.

Key points before setting up

To set up a charitable trust you will need a founding document for the Trust – called a Trust Deed.  This is the legal document which sets out the key elements of the Trust.  The questions you should answer before you see your lawyer are as follows:

What are your purposes?

A charitable trust must be charitable.  That may sound basic but it isn’t necessarily as easy as having a good idea – for example if you want to develop a new type of transport that is safer than a car then it sounds great but by itself that purpose won’t be “charitable”.  You need to fall within one of the following categories to count as a charity:

  1. Alleviate poverty: This does not just apply to the destitute but could be for those that fall below the ordinary standard of living. It could be achieved through financial means but also through practical means such as providing food and shelter;
  2. Promote education: Whether something is deemed to be charitable under this category will depend on its usefulness and its educational value;
  3. Promote religion: This is about the promotion of a wide range of spiritual teachings. Charitable purposes under this heading could range from the provision and maintenance of ministers/religious leaders to the provision of buildings for worship. However, it does not include just the promotion of certain ethics.
  4. Other charitable purposes beneficial to the community: This in a way is a “catch-all” provision. It can include such purposes as the promotion of health and recreational facilities. However, a trust will not be deemed charitable under this category if it is not for some public benefit.

Whether your purposes will fit the definitions is something that we can discuss with you.

What will be your activities?

Are political purposes okay?

What will your name be?

Who will the trustees be?

The trustees are those who meet and guide the Trust in the future.  They can also be great ambassadors for the cause.  Choose them wisely and consider having a variety of people involved who bring different skills.  For example a charity focussed on education of young people should try to have teachers involved but also those with other skills.

Incorporation

Trustees can apply to the Registrar at the Companies Office for incorporation as a board. The benefits of doing this include:

Tax status and whether you want to apply for tax exemption.

If you want to have the benefit of a tax exemption and the ability to issue charitable receipts for donations, you will need to register your charitable trust with Charities Services.

Practical considerations, cost and timing involved

Before you take the next steps it is worth knowing a few practical points, which include:

Summary

Although setting up a charitable trust can take time, it is often a most worthwhile structure to have in place.  We have helped many charities over the years and would be happy to discuss your situation with you.