What is the difference between forming a charitable trust under a living trust compared to forming a foundation under the Trustee Act 1952?
The senior General Manager from Rockwills, Mr. Azhar Iskandar Hew explained in this video.
Living Trust is pretty simple to set up because you do not need to get the approval of the authorities when you want to set up the trust. It’s a private arrangement you have with the trustee.
So, you draw up the papers and all that, then tell the trustee what you want to put inside this trust fund. So, the question is now: When do you want to activate this trust fund, upon death or during your lifetime?
Now, if you go with the Trustee Incorporation Act, in order to start up the trust fund, you will have to apply for licensing with the Prime Minister’s Department. You will need to provide whatever documentation they require which is usually the trust deed, application forms. The PM department also requires you to submit plans regarding what you want to do with the foundation in the future, your plans for the next twelve months if, let’s say, the license has been granted.
Keep in mind though, those plans that the PM’s department requires should be detailed, else they would think that you’re not serious about it. Though they don’t require guarantees in terms of how much you want to put in, they do ask for a proper plan. The Inland Revenue Board also will ask for a proper plan for them to grant the tax exemption license.
Now, what will happen is, you will apply to the PM’s Department to get approval first for all the paperwork. Once that is approved, it will probably take about six to eight months, sometimes even to a year.
Your next step will be after getting the approval from the PM’s Department, you will apply to Inland Revenue Board for a tax exemption license. That takes six to eight months.
Now, during this application, they will ask you: “From the time you got the PM’s Department license to your application today, what have you done in terms of the money that you are putting in to the foundation?” They want to see activities that have been done while you are waiting for approval from the IRB for the tax exemption.
That’s one reason. They want to look at your history, and at the same time, what they will tell you are you need to provide a plan for the next twelve months. If we grant you the license today, for the next twelve months, what are your detailed plans to use the funds?
They are pretty tight on that because they want to make sure that the approvals given are not going to be misused or used for money laundering purposes.
Also, when you have a center or foundation, it means you are really serious and into it. You need to spend time managing that foundation and treating it as if it is a company that you are involved in full time.
You can’t wash your hands off because you are the founder of that foundation. You will need to monitor the foundation’s activities because if anything is found wrong with the annual report, the PM’s Department and Inland Revenue will look for the founder and for the board of trustees in that foundation.
So, a foundation is for people who are serious in wanting to do charitable work. If you want a name only trust, I suggest you do a charitable trust, because that’s less cumbersome in terms of compliance.
Another difference is that a foundation can raise funds from the public but trusts cannot do that. Unless there are people who would willingly put money in to the trust. Somebody donates money in to your charitable trust, that’s fine, but you can’t have fund raising activities like Karaoko Singing contests… You can’t do all that. Your trust still has to be very much self-funded or on donations.
For Premium Webinar Members, you can watch the full replay of the session on How to Setup a Charity Foundation here: