Subsidiary Structuring for PSGEs – Charitable Trusts

As iwi move through their Waitangi Tribunal claims process to a settlement, the next question for many is how to manage settlement assets in the best interests of beneficiaries – both immediately and in the longer term. Charitable trust are often set up by iwi looking to help its members directly with a range of needs.

A primary concern for many iwi once they receive settlement assets is how to help their members with urgent and direct needs like education, housing and healthcare. Charitable trusts can be an effective way to meet this need.

Charitable Purposes

To qualify for registration, a trust must be established for “charitable purposes”, being the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community, and can also include the administration and maintenance of marae.

For a charitable trust set up by a PSGE, charitable purposes can include things like supporting education by way of grants to individuals for tertiary study, promoting cultural competence by providing Te Reo language courses, aiding healthcare by providing support with dental care and doctors’ visits for tamariki or kaumatua, or addressing housing deficiencies with items like heating or insulation. A charitable trust will need to specify what charitable purposes it intends to pursue in its governing document.  Any income earned by or donated to a charitable trust can only be used for those charitable purposes.

Trustees

A charitable trust is operated by trustees, who will usually be appointed by the PSGE but alternatively could be elected if the relevant trust deed allows. Trustees must meet certain criteria to be an officer under the Charities Act 2005, and are also subject to duties and obligations under the Trusts Act 2019.

If the trust intends to hold assets, it may also be advisable to incorporate as a charitable trust board. This is a registered incorporated entity, providing additional limitation of liability for trustees as well as making ownership succession easier if and when trustees change.

Funding

In this context, a charitable trust’s activities would be funded primarily by the PSGE trust donating a portion of income earned on its commercial activities or passive investments. This may also provide a tax benefit to the PSGE. The trust can also seek donations from iwi members or other parties.

Charities are required to file annual returns and financial statements with Charities Services – the standard and amount of detail required to be provided will depend on their size, but trustees need to ensure that all decisions and transactions are recorded thoroughly.

Risk and Liability

Generally, we don’t recommend that the PSGE trust’s assets are transferred to the charitable trust. Such a transfer could limit the PSGE’s ability to deal with those assets in future, and can also impact the beneficiaries’ rights to those assets.

In some contexts it may be appropriate for certain assets to be held by a charitable trust, for example culturally significant land that will never be developed or sold. However, any transfer of ownership should only be done in consultation with the PSGE’s lawyers and accountants.

Jessica Middleton is a Senior Associate in our Commercial Team and can be contacted on 07 958 7436.