THE ETERNAL GIFT OF TRUST - ESTABLISHING A CHARITABLE TRUST IN NEW ZEALAND

February 2013

THE ETERNAL GIFT OF TRUST - ESTABLISHING A CHARITABLE TRUST IN NEW ZEALAND

Since the 16th century many of the world's wealthiest families have realised that the accumulation of wealth alone is not enough. Many had long decided that tradition and position demands that they be involved in pursuit of higher causes such as the relief of poverty or the advancement of human knowledge. Arguably one of the most famous of these types of charitable institutions was the Nobel Peace prize instituted by Alfred Nobel and gifted in perpetuity to the pursuit of excellence.
Another famous charitable trust is the Rothschild foundation which has carried the name of the Rothschild family through the generations in association with the philanthropy in support of arts sciences and human endeavour.
Today many of the worlds influential leaders in politics and business establish and chair charitable trusts in order to promote their respective visions for the future of the world or aspects of its such as environment or education. Famous founders of charitable trusts in the United States include such notable businessmen as Bill Gates who has one of the world's largest charitable institutions. Following Bill Gates have been rafts of American businessmen who have started charitable institutions as a model of not only helping humanity but creating a new form of sustainable capitalism which has been titled "philanthrocapitalism". This new vision of the world recognises the restrictive and self defeating concept of pure capitalism because as the world heads towards destruction of its forests, its air and its water supply and as most of the world gets poorer there is an ever downward spiral of destruction that will leave nothing but emptiness for future generations. As a famous Indian saying by the Cree Indians "when all the fish are gone, when the waters are polluted, when the air can no longer be breathed then only will you understand that money cannot be eaten".
Philanthrocapitalism is dedicated to what one may loosely call sustainable capitalism for example the utilisation of alternative energies for mankind, the discovery of limitless food resources, eternal energy systems etc. These are all things which have limitless potential but in which traditional capitalism is not interested in investing as once was said to Nikola Tesla by businessman: "Why should I invest in solar energy when it can be obtained for free from the sun"? In a similar spirit Mikhail Gorbachev has created a powerful and one may say highly mysterious foundation for a new global economy based on environmental principles.
The potential of the charitable trust (or foundation) as a political and economic force of the future can be summed up in one commentator's view of Gorbachev's agenda:
"Gorbachev's blueprint for the future is manipulating the world's people into accepting a one world government under the presence of saving the environment. He has created a global Foundation called Green Cross which has as its magna carta "The Earth Charter" which he hopes will rival the Ten Commandments. He is helping to initiate a complete restructuring of our economy, our political system and also our religious views." It may even not be too farfetched to predict that as global corporations such as the East India Trading company became more powerful and influential than most governments, the new economic and political force will slowly emerge as the philanthropic or charitable foundation, after all one needs only to look at the catholic church which not only is exempt from taxes in perpetuity but has its own territory and passport regime to understand that this was a philanthrocapitalist intuition ahead of its time. So whilst the world's leaders are forever increasing the tax burden on individuals and corporations and thinking of new taxes there is one structure available that is not only tax free but exists perpetually and in this article I briefly set out the legal position, requirements and uses of charitable trusts especially as they apply in New Zealand law.
Registering a charitable trust in New Zealand:

A charitable trust can easily be registered in New Zealand by non residents if the trust operates for charitable purposes outside of New Zealand. In that case as long as the trust has a charitable purpose it can simply be filed as a non resident charitable trust. In this case the advantages of a charitable trust are:
1. It can conduct business own property and do everything corporation can do (i.e. many charitable trusts own universities, schools or other fee earning businesses).

2. As long as the business is not in New Zealand the charitable trust pays absolutely no tax in New Zealand.
3. It can be controlled by a board of trustees chosen by the founders or be the founders themselves.
4. It can receive grants or donations from donors around the world and can invest this money in any assets it wishes without paying tax (as long as the investments not in New Zealand).
5. The trustee can derive as much personal income as they wish from the trust as long as that income is related to their activities as trustees and further the can utilise the assets owned by the trust such as houses , cars etc.

How does this work in practice?
To take a simple example:
A perpetual trust is established in order to say run a university. The university is established as a perpetual charitable trust for the advancement of education. The founders can then loan money to the trust for its establishment if they wish. The founders then appoint themselves (with the right to appoint others that they choose) as trustees. They can pay themselves whatever salaries bonuses that they wish. They then run the university and receive fees, donations and other funds which are fully in their control. Out of these funds they can not only pay themselves salaries and bonuses but can also purchase motor vehicles, houses and other assets in the ankle of the trust. Whilst they are trustees (which are for their lifetimes) they can use these assets they can also use their power of appointment to appoint their children friends etc. as trustees. Indeed more and more businesses are big established as charitable foundations or trusts.
In New Zealand if you wish to receive further official recognition as a chartable intuition. This gives you the right to receive donations tax free from New Zealand sources and also be registered as a "public" charitable trust then there are further requirements to comply with the charitable trusts act and the charities act 2005. A further advantage of the charitable trust is that it is legitimate and open legal mechanism that is not prohibited by most governments. Thus for example whilst the laws of most countries prohibit politicians to own offshore accounts there are by current prohibitions to being appointed as trustees of legitimate charitable trusts recognised in law. Indeed for many political figures being on the board of charitable trust and involved in charity is actually beneficial to their political image. Indeed in this sense a charitable institution can be considered in many ways similar to a political party which can utilise its funds in any manner it chooses so long as kit advances the aims of the party. Politicians being appointed to boards of charitable institutions are a matter of prestige. Below I examine the extra steps required to register charitable public charity under the charitable trusts act:
Objectives of the charitable trust act
New Zealand officially recognises a charity by having it registered with the charities commission. The commission carefully scrutinises an application to ensure that it comes within the definition of a charity. The advantage of applying in the case of non residents who wish to establish a charity is that the charity can then officially take donations from the New Zealand public as well as internationally as well as having official tax exemption even if operating within New Zealand. In order to be considered charitable the charity must comply with the common law definition of charity. New Zealand draws its common law and legislation from English roots i.e. the statue of Elizabeth. The Statute of Elizabeth (otherwise known as the Charitable Uses Act 1601) was passed in England to protect and prevent the misuse of charitable funds. The preamble to the Statute contained the following list of purposes considered charitable at that time:

. relief of aged, impotent, and poor people
. maintenance of sick and maimed soldiers and mariners
. schools of learning
. free schools and scholars in universities
. repair of bridges, ports, havens, causeways, churches, sea banks, and highways
. education and preferment of orphans
. relief, stock or maintenance of houses of correction
. marriage of poor maids
. support, aid and help of young tradesmen, handicraftsmen, and persons decayed
. relief or redemption of prisoners or captives and
. aid or ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers and other taxes.
New Zealand charitable trust act repeats the above provision in s38 of the legislation which we set out full here:
38 Meaning of term charitable purpose in this Part:

. In this Part, unless the context otherwise requires, the term charitable purpose means every purpose which in accordance with the law of New Zealand is charitable; and includes the following purposes, whether or not they are beneficial to the community or to a section of the community
. (a) the supply of the physical wants of sick, aged, destitute, poor, or helpless persons, or of the expenses of funerals of poor persons
. (b) the education (physical, mental, technical, or social) of the poor or indigent or their children
. (c) the reformation of offenders, prostitutes, drunkards, or drug addicts
. (d) the employment and care of discharged offenders
. (e) the provision of religious instruction, either general or denominational
. (f) the support of libraries, reading rooms, lectures, and classes for instruction
. (g) the promotion of athletic sports and wholesome recreations and amusements
. (h) contributions towards losses by fire and other inevitable accidents
. (i) encouragement of skill, industry, and thrift
. (j) rewards for acts of courage and self sacrifice.
Over the years, courts have recognised many new charitable purposes that are very similar to those categorised in 1601, acknowledging that what is accepted as a "charitable purpose" must change to reflect current social and economic circumstances.
The courts have considered whether:
. The new purpose is very similar to a purpose previously accepted as charitable, and whether it satisfies the requirement that the purpose benefits the public. Courts have found the following purposes to be "beneficial to the community":
. promoting public health (such as providing education, counselling, and rehabilitation services)
. providing public works and services (such as building roads, maintaining a water supply, and providing cremation or burial services)
. providing public amenities and recreational facilities (such as public halls, libraries, museums, statues, fountains, playing fields, gymnasiums, swimming pools, parks, and botanical gardens)
. protecting the environment (such as revegetation, afforestation, and conservation)
. protecting human life (such as providing emergency rescue services)
. preventing cruelty to, and protecting the welfare of, animals (such as providing animal shelters or sanctuaries)
. facilitating social rehabilitation (such as integrating people back into the community who have a disability or some form of deprivation)
. promoting the efficiency of the armed forces.
It is also important that the trust observes the following:
. The potential beneficiaries of the trust must be a sufficiently wide group of the community
. What the trust provides must be of benefit to society.
It is useful to have a specialist in the area consider the wording of the objectives clause to ensure that it meets legal requirements.

Incorporation
Another issue which is sometimes important concerns the question of incorporation as a Charitable Trust Board. Under the Charitable Trust Act 1957, there is provision for registration as a Charitable Trust Board. The key implication is that assets owned by the trust do not need to be transferred into new legal ownership every time there is a change in the trustees. The Charitable Trust Board is effectively a separate legal entity.
Conclusion:
Whilst a charitable trust can be registered by non residents without the need for registration under the charities commission, registration with the commission in effect constitutes official recognition by the New Zealand government that the trust is a charitable one and therefore is exempt from taxation and empowered to be operated indefinitely. It is this author's view that within the next ten years we will see many business models moving towards the charitable sector, this indeed has been the case in New Zealand and is now the trend internationally. It may even be the case that whole communities will utilise the technology of the charitable trust to extricate themselves from the heavy taxation of big brother case to conduct themselves as charitable communities similar to the Jewish concept of a kibbutz or ayn rads Galts Gultch. Whether or not this vision will come to pass it is certainly the charitable trust sector makes this possible after all if we go back to the spiritual sources, to Buddha, to Christ, to Rajneesh and many of the worlds spiritual visionaries did they not all in effect create charitable communities that attempted to put an end to the concept of monetary exchange?