On August 15, 2011, the CRA released Guidance CG-009 concerning the requirements of a charitable trust. Registered charities (charitable organizations, public and private foundations) can be established as corporations, unincorporated associations and charitable trusts. While a trust can be used to establish any one of the three types of charities, it is most commonly used to establish a private foundation.
As compared to establishing a charity as a corporation, trusts are not subject to the annual provincial filings and fees applicable to corporations and societies and are generally less expensive to establish. However, both charitable corporations and charitable trusts are subject to annual filing requirements with the CRA. While annual meetings of the trustees are not required by statute (as is the case with members and directors of non-share capital corporations) it is highly recommended that trustees meet regularly to ensure that they are meeting their duties as trustees and managing the charity effectively.
The CRA sets out the elements that it requires in a trust document for a registered charity established as a trust. These elements are:
- the name of the trust
- the name of the settlor(s) or
the name of the person(s) making the declaration of trust
- the names of the original trustees
- the charitable purposes of the trust
- the rules governing how the trustees will administer all property (including money) received
- an acknowledgement that the initial trust property (including money) has been transferred to and received by the trustee
- a provision in which the trustees give assurance that all property (including money) received will be applied only for the purposes outlined in the trust document
- a provision detailing how the trustees will be replaced
- the effective date of the document
- the signatures of the trustees
A trust is established when the settlor transfers property to one or more trustees and sets out the conditions, usually in a written document, for how that property must be used and for whom. It is worth noting that although the list above refers to “trustees”, a charitable trust can be established with a single trustee. That person can also be the settlor of the trust.
Trusts are complex vehicles that are subject to sophisticated tax rules and the common law and it is our recommendation that they not be established without advice from expert counsel. It is our view that the above mentioned requirements represent the minimum requirements that should be included in a deed of trust. Consideration should also be given to including provisions regarding trustee indemnification, the termination of the trust, trustee powers and regulations and permissible amendments.
The CRA recommends that applicants submit a draft trust document for review by the CRA because once a trust is established, it may be impossible to amend the trust without a court order. We would recommend that a charitable trust include an amendment clause that allows the Trustees to amend the trust if need be. This will avoid the need to go to court should future amendments be necessary. Applicants for charitable status will want to consider whether to limit amendments to the administrative provisions of the trust or whether the charitable objects of the trust are open to amendment as well. In our experience, if charitable objects are subject to amendment, the amendment clause must provide that at no time can an amendment be made that will render the objects of the trust non-charitable.
We also recommend that the trust document set out where property is to be transferred on a wind-up of the trust. This type of provision must at least limit potential recipients to qualified donees, and if the charity is established in Ontario, to other charitable organizations.