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Charitable Trusts

Diminution of charity

New Zealand has an extraordinary number of family trusts.  This love affair with trusts, perhaps not surprisingly, is not limited to family trusts and is mirrored in the number of charitable trusts

One issue with the number of charitable trusts is the fragmentation of potential resources and how these can be diminished through administration, legal and accounting costs. 

The recent decision in The Mabel Elizabeth James QSM Charitable Trust Board (Incorporated) highlights a practical approach to this issue.  The trust in question had modest funds and was increasingly limited in the amounts available for distribution due to the ongoing administrative costs.  The trustees took the pragmatic approach of incorporating as a board so that the trustees could apply to the High Court for a liquidator could be appointed under s 25 of the Charities Act.  It is noted that a liquidator cannot be appointed to an unincorporated trust (although a receiver can be – see Court Appoints Receiver to Trust).

In considering the matter the court found that the requirements to appoint a liquidator (including the “just and equitable” test) were made out, ordered the appointment of the nominated liquidator and also ordered that the trust fund be divided between four nominated charitable trusts whose objects were in accord with The Mabel Elizabeth James QSM Charitable Trust.

Such decisions come under the general category of “small” or “unremarkable” that will not generate much interest.  This is perhaps unfortunate as many trustees of similarly challenged charitable trusts would be wise to consider the appropriateness of the same for the better observation of charitable purposes in general.  Anyone questioning this view might find some general searches of the Charities Register illuminating to get a feel for how many charities exist in support of similar or identical purposes.  Divide and conquer, although often proposed, may not always be the best strategy, at least in the realm of charitable giving.

 References:

  • The Mabel Elizabeth James QSM Charitable Trust Board (Incorporated) [2014] NZHC 581
  • Charities Act 1957, s 25

 

 

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Discussion

2 thoughts on “Diminution of charity

  1. Thanks for this article Vicky – an interesting read. I wonder how much of their resources were further diminished through this liquidation process? Did their trust deed expressly restrict them from winding up or gifting the funds to another charitable entity to continue on their charitable purpose? An interesting area to consider as the New Charity Reporting Standards might also further diminish the resources of charitable trusts due to more accounting costs incurred in the reporting.

    Through my work at The Gift Trust (www.thegifttrust.org.nz) we have been talking to a few small trusts, with large admin fees, about winding down their trusts and transferring their funds into our Donor Advised Gift Accounts (sub-funds under our charitable umbrella). The trustees can continue to provide advice on where donations might be placed (or delegate this to a nominee), without the admin hassle and costs of running their own charitable trust. More here: http://www.thegifttrust.org.nz/existing-trusts

    Posted by Julia | December 13, 2016, 11:57 am
    • Thank you for your e-mail. I agree that the resources of many smaller charities may be better utilised through consolidation or similar so that the funds are applied for the intended charitable purposes rather than administration.

      kind regards,

      Vicki Ammundsen

      Posted by vickiammundsen | January 1, 2017, 11:48 pm

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