Keep your ducks in a row
A relative recently encountered a problem as a Trustee of a charitable trust.
The charitable trust was operated by a service club for fundraising and making grants to worthy causes and projects in the community.
Last year the trust was deregistered because of a simple error – the Annual Return wasn’t filed with within 6 months of balance date.
The trustees received no warning they were about to be deregistered. Reminders were being sent to a former trustee and member of the club.
The consequences of a charitable trust being deregistered can be significant. The trust immediately loses its charitable status. That affects its tax position. It can mean the proceeds of fundraising become taxable.
There can also be unforeseen consequences. For example, in this case, the trustees found:
Former club members were still trustees of the trust
Some trustees had not been validly appointed
Capable people were exposed to unnecessary risk
The work, angst and frustration of reregistering the charity was significant and took just over 15 months from start to finish
Essentially the service club had to start again in setting up their charitable trust and applying for charitable status. It was an necessary distraction from all the good things they were doing.
In New Zealand there’s about 27,000 registered charities. I read this week that 1,146 charities were deregistered in 2014-15 just because they didn’t file their Annual Return. That’s over 4%!
So what are the lessons? Five good practices I’d suggest for trustees are:
Understand the rules, your obligations and responsibilities
Document procedures so trustees have a reference point for good practice (especially where there is a regular turn-over of trustees)
Implement controls to ensure key dates don't get overlooked (e.g. dates for the vesting of the trust, when minors are of age, when leases expire or rent is reviewed, when returns are due, etc.)
Regularly check controls are being used and are still effective
Induct trustees so they understand their responsibilities
Trust good practice.
Lindsay