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This article describes the steps to set up a charitable trust and key points to consider.

02 Feb 2017 Post by: Ken Lord , Steven Moe

Introduction

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:

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

Other questions to answer

Are political purposes okay? One of the historical fundamental aspects of charitable trusts is that they are not underpinned by some political purpose. However, as of 2014, the New Zealand Courts have found that if a charitable trust has an ancillary (secondary) purpose that is political in nature, then that does not automatically exclude the trust from being charitable if there is still some public benefit. What is important to remember is that this political purpose must be secondary to the main charitiable purpose and whether or not the trust is deemed charitable will be decided on a case by case basis.

What will be your activities?  Once you have purposes it is important to think about the practical side of how you will implement those purposes.  Will that involve running seminars and workshops?  Providing scholarships?  Promoting participation by volunteers?  Jot down all your ideas so they can be incorporated in the Trust Deed

What will your name be? Usually charitable trusts will have a name that reflects their charitable purposes or what they aim to achieve. However, before finalising a name you have to be certain that your trust will be able to use that name. The name cannot be the same or similar to the name of another charitable trust or any other corporate body. If you do decide to use a name similar to that of another trust or corporate then you may need to have the written consent of that trust or corporate to use it.

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.

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