Nonprofit Organization Charitable Trust Vs. Corporation
There are many ways to create an organization to benefit a cause. Charitable trusts and corporations have the common goal of working toward a certain outcome, but they achieve it in different ways. You should weigh the benefits and disadvantages of each before beginning your charitable endeavor.
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Trust
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A trust is a fund set up to be administered by a particular person or organization. Often, a living individual sets up a trust in order to see that her money is handled as she wishes after her death. The person who owns the property, the settlor, decides how the funds are to be handled and sets very specific rules that she passes on to the administrator of the fund, who is known as the trustee. The settlor maintains ownership of the property throughout her lifetime, while income from the property, like that from interest earnings, is given to the trust.
Charitable Trusts
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A charitable trust works very similarly to a traditional trust. The funds generated by the property are donated to a charity of the settlors' choosing. Charitable trusts are sometimes also called "foundations." The foundation is intended to live on well past the initial donors, and should therefore benefit a cause that is considered relatively timeless.
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Corporation
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A charitable or nonprofit corporation works much like a for-profit corporation. A board of directors runs the day-to-day workings of the business. In a nonprofit situation, the directors are not paid, but employees of the corporation may be. During the incorporation process, the board sets bylaws to govern the group. These bylaws can mold to the changing goals of the corporation. The proceeds of the business after paying any employees and general operating expenses go to benefit a given cause.
Considerations
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A charitable trust provides the settlor with the confidence to know that his cause will continue to be funded in the manner he set forth since trustees have little power to change the nature of donations. Corporations however, are very pliable. The directors and members can vote to change the direction, structure, or funding initiatives of the group as long as they remain within the boundaries set by nonprofit law.
Choosing
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There are also practical factors when choosing between a charitable corporation and trust. A corporation has the advantage of being relatively topical. The unchanging nature of a trust's mission makes it best suited to long-term issues. Issues that are short-lived are better funded through a corporation. For example, a corporation would be better to fund a construction project, while a trust may be the better choice to fight homelessness.
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References
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