Many local trusts are struggling with increasing compliance requirements, and the January 2021 changes to the Trusts Act will only exacerbate the issue. Kimberly Lawrence, Associate at Greg Kelly Law (specialists in trust law), says “It’s getting tougher to be a trustee. Risks are increasing, compliance costs and obligations are increasing, and it is expected to be easier to hold trustees to account when they aren’t doing their job. It’s certainly time to consider that there could be another way”.

Today there are opportunities available to streamline and consolidate local trust funds, enabling a continuation of purpose, reducing risk and future proofing trust funds in perpetuity.

Community Foundations

New Zealand has 17 Community Foundations, which cover most of the regions of the country. Community Foundations (which are different from New Zealand’s Community Trusts*) are not-for-profits working to build a permanent fund for their local community.

A Community Foundation pools investments and enables a local trust to establish a fund for a specific purpose, retaining the ability to direct distributions, with the Community Foundation managing all governance, compliance and investment responsibilities.

Community Foundations have, to date, already resettled over $30m in local trust funds, with discussions ongoing in communities about future resettlements. Andrew Phillips, Manager Regulatory at Charities Services, says:

“We see a real value in local charitable funds exploring how Community Foundations and similar groups can support the funds to realise their potential. Resettlement is a great option for funds that have become inactive or dormant over time.”

There are many reasons why trustees may choose to consider asset resettlement, including:

• The legal/compliance/reporting requirements are becoming too cumbersome and risky
• It can be difficult to identify beneficiaries or spend the income of the trust
• It’s becoming increasingly difficult to attract Trustees
• The work of administering the trust is becoming too onerous or disproportionate to the level of funding
• The Trustees wish that they knew more about local issues and opportunities, where the greatest needs in the community are found and what other local funders are up to

The winner is most certainly the community, which currently receives an extra $160k in funds per year from the investments, now managed through the very robust investment structure of Nikau Foundation.

I’ve seen first-hand what inefficient local trusts can look like through my role as a local trustee in Porirua. In 2018 Trust Porirua, which existed under an old Licensing Trust structure (with costly public elections and the requirement for costly public sector audits), resettled its remaining $5.5m of assets with Nikau Foundation, Wellington’s Community Foundation, to create the Nikau Porirua District Fund.

This local fund, now managed by the local Community Foundation, is now able to return over three times as much funding to the community of Porirua, with a much leaner structure. And, crucially, the assets are being safeguarded and grown in perpetuity under this permanent umbrella.

The winner is most certainly the community, which currently receives an extra $160k in funds per year from the investments, now managed through the very robust investment structure of Nikau Foundation.

As an added bonus, the local Community Foundation is in touch with local needs and can channel funds to where they are needed most. They are also actively working to grow the overall fund through local generosity, particularly bequests.

As another example, a number of Hearing Associations from around New Zealand have also been in discussions with their local Community Foundations to take over the management of their assets, enabling their charitable purpose to continue.

The Gisborne Hearing Association had found that their active membership and the use of their premises had been steadily declining due to advancements in hearing technology. Coupled with some other Board challenges, they could see they would have to close their organisation. There was still a need to financially support some members of the hearing-impaired community, so it was a difficult situation for the group.

A solution was found through The Sunrise Foundation, Gisborne’s Community Foundation, which took over the management of both their assets and grant-making to establish ‘The Sunrise Hearing Assistance Fund’. The Association’s capital is preserved and is still able to receive donations and generate income to support hearing-impaired members of the local community.

As the above examples illustrate, we have an opportunity here in New Zealand to make community assets really work for the community. In the current environment, I think we owe it to our communities to do this work better, and to consider new emerging opportunities with an expert eye, such as impact investments.

Changes to the Trusts Act and a post-Covid world have highlighted the need to streamline trust structures even more acutely, and Community Foundations are providing simple, future-proofed solutions for many inactive and struggling trusts.

*What is the difference between a Community Trust and a Community Foundation? NZ’s Community Trusts have an existing pool of invested assets and distribute the income as grants, to meet local needs. Community Foundations are growing local assets from local generosity and, increasingly, trust resettlements, distributing the income as grants, to meet local need and donor-directed charitable causes and projects.