Why a charitable trust is your best philanthropic move

A charitable trust is a legal structure for giving money and assets to good causes, where the settlor donates assets to the trust. It’s set up to benefit the public, with purposes like:

 

• Helping the poor or those in need.
• Advancing education or religion.
• Protecting the environment.
• Supporting human rights.

 

These trusts are managed by a group of people called trustees and are governed by the Kenya’s Trustees Act. They’re permanent and irrevocable, which means you can’t take back the assets you donate to the trust. This ensures your legacy of giving lasts forever and protects the assets from creditors.

 

Why Set Up a Charitable Trust?

Charitable trusts offer great benefits for you, your family, and the community:

 

1. Community Impact: You can create a lasting impact by funding things like healthcare, education, or social services for decades.
2. Tax Breaks: the assets you put into an irrevocable charitable trust are removed from your taxable estate, which can lower your estate tax bill. Plus, transferring property to the trust may be exempt from stamp duty.
3. Legacy Building: It’s a way to leave a lasting mark and ensure the causes you care about are supported long after you’re gone.
4. Flexibility: You can tailor the trust to your specific goals, whether that’s building a hospital or funding scholarships.
5. Asset Protection: Once assets are in the trust, they’re no longer considered your property and are shielded from creditors.

 

A Charitable Trust or Company Limited by guarantee; Which Path is Right for You?

The choice between an incorporated Charitable Trust and a CLG often comes down to one’s primary activities.

 

1. Foundation of Law: A Charitable Trust is governed by the Trustee Act and the Trustees (Perpetual Succession) Act, while a Company Limited by Guarantee is governed by the Companies Act, 2015.

 

2. Leadership: Management of a Charitable Trust rests with the Trustees, who bear a strong fiduciary duty over its assets, whereas a CLG is managed by Directors and subject to oversight by its members.

 

3. Primary Activity: A Charitable Trust is best suited for holding and managing assets for long-term benefit, such as an endowment fund, while a CLG is better suited for actively running projects like operations, advocacy, or service delivery.

 

4. Governing Document: The operational rules for a Charitable Trust are contained in its Trust Deed, whereas a CLG’s rules are laid out in its Memorandum and Articles of Association.

 

5. Registration: Registering a Charitable Trust involves both the Business Registration Service (BRS) and the Attorney General’s office, while the registration process for a CLG is generally more streamlined through the BRS alone. Before a Charitable Trust can become a legal entity, its Trust Deed must first be formally recognized. This initial step involves paying the required stamp duty and registering the Deed under the Registration of Documents Act (Cap 285), a process historically managed by the Lands Registry and linked to the Attorney General’s oversight of documents.

 

6. Asset Control: Asset transfer and management within a Charitable Trust are strictly governed by its Trust Deed and the wider Trust Law, whereas a CLG’s asset transfers are governed by its Articles of Association and the Companies Act.

 

1. Liability: Both offer limited personal exposure, as a CLG limits members’ liability to a nominal guarantee amount upon liquidation, and an incorporated Charitable Trust ensures the Trust itself (as a body corporate) is liable for its debts, generally shielding Trustees. However, in case of recklessness, breach of fiduciary duty (e.g., through fraud, willful misconduct, or gross negligence) by the trustees they can be sued personally, this underscores the gravity of their role.

 

8. Compliance: Both entities must apply for tax exemption from the KRA and file annual returns. Point to note, charitable Trusts are not automatically exempt from tax. They must apply for and be granted exemption status by the KRA to benefit from income tax and stamp duty exemptions. The exemption is not granted simply upon registration as a trust or CLG.

Other compliances include appointing a Company Secretary and filing audited accounts, while a Charitable Trust’s compliance is regulated by the Trustees Act and now includes adhering to the new Beneficial Ownership register requirement.

 

To move forward with establishing the Charitable Trust and its incorporation, the following essential documents must be prepared and compiled for submission:

 

1. Trust deed (legally registered)

1. Petition for incorporation (commissioned by a Commissioner of Oaths)
2. Certified copies of trustees’ identification
3. KRA PIN certificates
4. Passport-sized photographs of trustees
5.  Current financial statements of each trustee
6. Bank statements
7. Title deeds of assets Trust deed (legally registered)
8. Petition for incorporation (commissioned by a Commissioner of Oaths)
9. Certified copies of trustees’ identification
10. KRA PIN certificates
11. Passport-sized photographs of trustees
12.  Current financial statements of each trustee and bank statements
13. Bank statements
14. Title deeds of the assets

 

The greatest legacy is guaranteed support. Move past simple donations and establish a permanent, well-governed Charitable Trust. Your eternal impact starts with Kenbiz Registrars, contact us today at info@kenbizregistrars.com