I recently did an article at muslimmatters.org on protecting Islamic Institutions by creating a California Trust. Make sure you read it. Here are a few questions that some have asked me, and I am posting these as a FAQ.
What does this involve?
In short, you would be creating a subsidiary organization that acts as a shield to protect donor intent to protect your charitable assets. So, if your organization no longer exists, your assets can be available for use by an organization that has the same or similar purpose. If you are a Masjid, your assets can continue to be used for another masjid.
What kind of assets are we talking about here?
Any assets that are long-term in nature, such as real property or financial investments.
Does this mean that we are giving up control of the assets?
It depends on what you mean by “giving up control” since you are giving it to a separate nonprofit organization, though your organization appoints a majority of the Trustees. The assets given to this trust are for the benefit of your organization.
Why are you advocating doing this through a trust?
Trusts are the best vehicles for documenting and enforcing donor intent. So if you have property that is genuinely a waqf, you will want to make it harder to change its purpose. If you organize a nonprofit as a corporation, future boards can easily alter bylaws.
Also, the state attorney general has jurisdiction over charitable trusts. This fact may become useful.
Does the Attorney General of California have jurisdiction over religious corporations?
No. Religious corporations represent an exception to the Attorney General’s jurisdiction. Another reason we recommend trusts.
What kind of decisions do we as an organization need to make?
A Board of Directors will need to make several decisions. Among them, what assets to place in the trust, who will act as the trustee, how the money is to be invested in any restrictions on getting the money to the “supported organization.” That would typically be the organization this organization is meant to support.
But wait, if the government can come after an Islamic institution, what is stopping them from going after a supporting organization set up as a subsidiary?
It is hard to tell what the basis of any actions to shut down a religious organization may be at this juncture, given the current state of constitutional law (which is subject to change). However, given that a trust that is set up as a supporting organization does not conduct any activities itself, but is rather set up to fund another religious organization, the arguments to seize the assets of one would be different from the argument to seize assets from another. Furthermore, charitable trusts fall under the jurisdiction of the state Attorney General who is obligated to make sure that trust assets are used for the charitable purpose intended, in the public interest. We would hope that a good attorney general would find seizing trust assets merely would be the trustees? Punishing a religious community is not in the public interest.
Who would be the trustees?
You will want to appoint individuals capable of serving as fiduciaries for the trust. In all likelihood, they are going to be individuals who are regarded as stakeholders in your nonprofit organization.
What are the trustees supposed to do?
The trustee is supposed to watch over the funds, make sure that they are being invested appropriately, ethically and within the bounds of the law and make distributions to the “supported organization” based on rules set out in the trust.
What if the nonprofit organization needs a large amount of money from the trust because there is an emergency?
It is possible to design a trust that includes provisions for an emergency fund for the supported nonprofit organization. So if for example, there is an extraordinary need for $500,000 saved in the trust, the trustees have the ability to make that distribution even if it is greater than that year’s income for the trust.