The Charitable Trust Doctrine

 What is the Charitable Trust Doctrine?

 

 From the Attorney General’s website...

 

From the Non Profit Law Blog by NEO Law Group, based in San Francisco. Their blog specializes in California Non Profit Law and is an excellent source of information. 

https://nonprofitlawblog.com/charitable_trus/

 

The Charitable Trust Doctrine maintains that charitable assets must be used for the expressed purpose for which they were attained. In other words, if a charitable entity tells you that your contribution will go for a certain cause, then your SPECIFIC contribution must be used ONLY for that specific cause. A TRUST is created when this happens. The entity becomes a TRUSTEE and must ensure that the charitable funds or assets donated are used for the sole purpose it was given to them. It was given to them in trust, and they must honor this by law.

 

grantLOVE Project says that every item for sale will benefit the arts. This means that all the funds earned from the sale of these items (not just the profits) can only be used towards arts related projects or charities and to pursue the grantLOVE mission.

 

From the above screen capture from the Non Profit Law blog (inside the green rectangle):

 

"...it may be impossible to separate out donations and contributions from other revenues, and such revenues may have only be derived from the "base capital" created by the donated assets."

 

What does this means? Well, because the revenues garnered by the sale of these charitable items are used by grantLOVE Project to acquire/fabricate more items, all of the items acquired/fabricated also become charitable items. As such all of the proceeds from these items become charitable funds. And on and on it goes. It becomes impossible to separate what may be deemed a charitable asset or fund versus what is not. Because of this, ALL items and funds are "irrevocably dedicated" to further the charitable cause and cannot be used for anything other than the pursuit of that cause.

 

Also from the Non Profit Blog link mentioned earlier regarding the Charitable Trust Doctrine...

 

Furthermore, for example, if it is stated that the profits will benefit OCMA, then those profits can only be used for OCMA. They CANNOT be diverted to another charity or cause (See What Kind of Trickery is This). They were raised for OCMA and to OCMA they must go. ** I will elaborate on this in a future post when I discuss what it means to be a Commercial Coventurer.

 

Another example: If grantLOVE Project were to change the types of charities they contribute to, lets say animal welfare, the profits that were collected prior to them making that change could only be used for arts related projects or charities because that's what they were collected for originally. Only the new funds collected could be used for animal welfare. 

 

Always, and without exception, the charity must honor the original purpose of the funds and assets at the time they were collected.

 

Alexandra Grant has openly declared on the grantLOVE website that “each grantLOVE artwork or product benefits an artist project, arts education organization or arts non profits”. By stating this, she is openly declaring that grantLOVE Project is a charitable entity. As such, they must now follow the rules of the Charitable Trust Doctrine.

  

 

 

This statement also means that every item listed for sale on the grantLOVE website is a charitable asset. Because every item is a charitable asset, the funds raised by the sale of these items are charitable funds.  

 

 

Duty of Loyalty and Care:

 

From the Attorney General’s Guide for Charities

https://oag.ca.gov/sites/all/files/agweb/pdfs/charities/publications/guide_for_charities.pdf

 

“The TRUSTEE, the person with the legal title to the property, has a fiduciary duty to always act in the best interests of the trust and its beneficiaries, who hold equitable title. California case law defines a fiduciary relationship wherein one party, such as a trustee, “is in duty bound to act with the utmost good faith for the benefit of the other party,” such as a trust’s beneficiaries.

 

Trustees are held to a high DUTY of LOYALTY and CARE in managing trust assets, and fulfilling the trust’s purposes; this includes reporting to beneficiaries.” 

 

Duty of Care:

"...director owes a duty of care to its nonprofit corporation and the corporation's charitable beneficiaries."

In other words, managers/directors must act responsibly in regards to both the charitable entity and the beneficiaries it raises funds for. This means ensuring that the entity and the beneficiaries are properly represented to the public and that all charitable assets are used appropriately. This also includes anyone representing the entity (employees, other businesses and charitable organizations using their name) and ensuring that they are representing them accurately and honorably. Furthermore, this extends to ensuring that all the beneficiaries that will be receiving any of the charitable funds raised fall under the purview of the charitable entity's mission statement and, if they are also charitable entities, that they be registered and in good standing with the Attorney General's Registry of Charitable Trusts before doing so. A charitable entity that is required to be registered but isn't, or is registered but is not in good standing, cannot receive or solicit any charitable funds.

 

From the Attorney General's Website

https://oag.ca.gov/charities/delinquency 

 

Duty of Loyalty:

"...obligated to act with undivided loyalty, be fair in his or her dealings with the nonprofit, and must NOT SEEK TO BENEFIT PERSONALLY from the ACTIVITIES OR RESOURCES OF THE NONPROFIT"

 

In other words, Alexandra Grant, as the owner and manager of grantLOVE Project cannot personally benefit from ANY of the grantLOVE funds, assets or resources. She must act in the best interest of the entity at all times and exclude her personal gain from any decision making. It doesn't matter that she is an artist and technically falls into the category of someone who can benefit from grantLOVE Project, as the owner and manager she is legally forbidden from doing so. Using grantLOVE to benefit herself in any way is strictly prohibited, entirely unethical and is considered a breach of charitable trust.

From the Non Profit Blog by NEO Law Group. 

https://nonprofitlawblog.com/duty_of_loyalty/

 "They key to meeting this duty is to place the interests of the corporation before the director's own interests or the interests of another person or entity."

 

What the above means is that this duty also extends to family, friends and other businesses or charities. In essence, she not only has to exclude herself from benefiting from grantLOVE in any way, but also cannot show favor to other people and businesses, with whom she has a personal relationship with, if it is not in the best interest of grantLOVE Project. If she stands to have more to gain from the exchange than grantLOVE Project does, it is considered a self-dealing transaction.

 

https://www.investopedia.com/terms/s/self-dealing.asp 

 

grantLOVE Project has an obligation to safeguard all charitable assets and funds from being misused in any way. The assets (items for sale) are for the sole purpose of raising funds for arts related charities. The funds raised MUST be deposited in a bank account that is for the sole use of grantLOVE Project and must only be used to further the purpose of their openly declared mission statement.

 

https://www.boardeffect.com/blog/rules-non-profit-organizations-boards-governance/

As the manager of grantLOVE project, Alexandra Grant has a fiduciary responsibility in ensuring that this TRUST is NEVER broken. If any of the funds or assets are misused or misappropriated in any way, she is the sole person accountable for this because she is the sole manager and owner. 

 From the Attorney General’s website and Guide for Charities...

 

 

https://oag.ca.gov/charities/complaints

 

https://oag.ca.gov/sites/all/files/agweb/pdfs/charities/charitable/ct9.pdf

 

Protecting the charitable assets and ensuring that they are used as intended is part of the Attorney General's role and duty. This is why the registry exists and why anyone who holds charitable assets or funds in the state of California must register with the Registry of charitable trust within the first 30 days of coming into possession of these assets and/or funds. 

 

 

https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=GOV&sectionNum=12585. 

 

What the section underlined in blue means is that if a Trustee (a charitable LLC is considered a Trustee) is soliciting for a charity or charitable cause, but no one gives them anything, they do not have to register. Only once they come into possession of charitable funds and assets (i.e.- someone gives them a dollar for their cause) do they need to register with the Attorney General; and they need to do so within 30 days of receiving the assets and/or funds. This is legislative law.

In Summary:

The Charitable Trust Doctrine is something that every charitable entity must follow. In order to do this, they must:

1) Ensure that all charitable assets or funds that come into their possession are used according to what they were given for.

2) Ensure that none of the charitable assets or funds are misused or misappropriated in any way.

3) They must keep the charitable funds in a bank account dedicated to and for the sole use of the charitable entity.

 

4) They must keep track of which funds were acquired for certain purposes versus others in order to ensure that funds or assets are used for their originally dedicated purposes only.

 

5) Manager and Directors have a DUTY OF CARE in their oversight of all operations and must act responsibly with regards to the charitable entity and their beneficiaries, ensure that both are honorably and accurately represented, and that all assets are use appropriately. 

 

6)  Managers and directors have a DUTY OF LOYALTY and must act in the best interest of the charitable entity and cannot personally benefit from the profits, activities or resources of the charitable entity in any way.

 

I ask you to keep all of this in mind as you read the posts in this blog. These points will be referred to again and again.