A charitable trust is one of the simplest non-profits to set up. The grantor, or trust creator, draws up a declaration of trust, appoints a trustee or trustees and places assets in the trust to fund the charity. It's easier to create a trust than a non-profit corporation, but a trust offers less protection against liability. It's possible to write a declaration that allows the trustees to incorporate the trust.
Draft the Declaration
One of the differences between a trust and a corporation is that trustees have less flexibility than corporate directors. Trustees have to honor the instructions in the declaration. If the grantor wants the trustees to have the incorporation option, the declaration should give the trustees that authority. The IRS offers a sample clause on its website in which the grantor "authorizes and empowers the trustees to form and organize a nonprofit corporation limited to the uses and purposes provided for in this Declaration of Trust." For those who want to incorporate a trust, this type of clause would do the trick, the IRS says.
Switching to Corporate
The trustees must file to incorporate according to the laws of their state. That includes choosing a name for the new non-profit company, drawing up articles of incorporation and submitting them to the state, and paying any incorporation fees. The trustees typically become the initial board of corporate directors. They can then transfer the assets from the trust to the new corporation, or the corporation can administer the trust, depending on state law.
- Trust image by Friday from Fotolia.com