Forming a Charitable Trust
Decide who will be included on the board of trustees. Your defense fund needs trustees to manage the funds you will raise. Your board should include both people passionate about the cause and people such as accountants or attorneys who have the necessary skills to manage the trust funds appropriately.
Draft your trust document. Much like the articles of organization of a corporation or other business entity, your trust document empowers the board of trustees to manage the trust funds and sets forth the terms of your operating plan. If you want to apply for tax-exempt status with the IRS, you'll need information from this document to fill out the necessary forms to apply under 501(c)(3). Although most legal defense funds are set up as charitable trusts, remember that you won't have as much protection as you might if you formed a non-profit corporation. Since charitable trusts are organized for charitable purposes, trustees have a fiduciary duty to the charities or charitable purposes the trust serves, rather than specific individuals. Because the beneficiary of a charitable trust is essentially a cause or an idea rather than a specific individual, charitable trusts can exist indefinitely rather than needing the specified duration required for other trusts. Typically, the document you want to create will be a Declaration of Trust. The declaration states that you (or the trustees) hold the property in the trust account for the benefit of the particular charitable purpose. Your declaration must include the name of your trust, the trustees, and the charitable purpose. If you intend the trust to be perpetual, you also must include a method for choosing successor trustees when the named trustees are no longer available to fulfill their roles. If you intend to apply for tax-exempt status, you must also include a clause in your trust document that explains what happens if the trust is disbanded or otherwise ends. Your declaration also should lay out the way decisions will be made. Trustees may have equal voting rights, or you may want to impose some other decision-making process. If you want different trustees to have different roles, or you want to implement a weighted voting plan, this should be spelled out in the declaration. Since state law differs on the mandatory provisions for trust documents, check your state's trust code to determine any other clauses that may be mandatory.
Consider working with a community foundation. Community foundations provide the framework and infrastructure to support smaller trust funds and other private foundations. You can start your own fund with a community foundation rather than going through all the time and effort of creating an organization on your own. The Council on Foundations provides a community foundation locator on its website that can help you find a community foundation near you.
Comply with any state and federal regulations. You must review the guidelines and rules for charitable trusts and make sure your trust abides by those regulations. Charitable trusts generally are governed by your state's trust and property law, rather than by the business organization laws that would govern churches or non-profit corporations. Additionally, the fiduciary law that binds your trustees would differ from the law that binds corporate directors. You must research your states trust law before you form your trust for your legal defense fund to ensure that you've met all state requirements. If you're unsure about any aspects related to the formation of your fund, consider consulting an attorney who has experience in non-profit organization and the formation of charitable trusts.
Apply for an EIN. Before you can start raising money for your legal defense fund, you must get an employee identification number from the IRS. The IRS requires you to have an EIN even if you don't think the legal defense fund will ever hire any employees. You can get an EIN by filling out and filing Form SS-4 with the IRS. There is no charge for getting an EIN.
Open a bank account. After your trust has its own EIN, you can open up a bank account in the name of the legal defense fund.
Building a Donor Base
Network with your friends and family members. Friends and family members who support you may become the first donors and supporters of your legal defense fund. Prepare your public statements to drum up support for the cause, and practice them on your friends. They can let you know how persuasive you are and which points need more support. Talking to people you know personally is a cost-effective way of building grassroots support for your fund. Try to secure a promise from each friend or family member who donates that they will talk at least three of their friends into supporting your cause as well.
Hold a fundraiser. Capitalize on the talents of family and friends to hold an event that encourages broader community awareness of and involvement in your legal defense fund. If you or your family members are members of a church or civic organization interested in supporting the legal defense fund, find out if they can offer facilities for your fundraiser at a free or reduced rate.
Start campaigns on social media. Hashtag campaigns can raise national – if not global – interest in your legal defense fund. Set up accounts for your fund on popular social media websites and look for other organizations with similar agendas. Link with them and comb their friends and followers for potential supporters. Ask friends and family members to "like" and share your social media pages with other friends. Post links to news articles and other web pages that are related to your legal defense fund or its purpose. In this way, you can become a place for your followers to get news on your particular cause. Use your social media accounts to develop emotional connections with the people who follow your pages and like your efforts. The more engaged they become, the more likely they are to become donors some day, or to share your efforts with someone else who becomes a donor.
Associate with established organizations. If a major non-profit organization's interests fall in line with the interests of your legal defense fund, you might consider associating with them to gain additional promotion. Fundraising professionals like to work with organizations that have loyal followings or a high profile among the public, so if you work with a more established group you may be able to get more experienced professionals to help with your donation drives.
Applying for Tax-Exempt Status
Determine if you are eligible for tax-exempt status. Not every non-profit organization is necessarily eligible for federal tax-exempt status under section 501(c)(3) of the tax code. Your legal defense fund must fall within one of the purposes recognized by the IRS under section 501(c)(3) of the Internal Revenue Code. In most cases, you would claim your legal defense fund was for charitable purposes, since you are providing legal defense assistance to those in need. Keep in mind that tax-exempt status under 501(c)(3) also comes with a number of responsibilities, including ongoing record keeping and filing requirements, that must be met or you risk losing your tax-exempt status.
Complete the appropriate federal form. Most non-profit organizations must file Form 1023 or Form 1023-EZ with the IRS to apply for tax-exempt status. Small organizations with gross receipts of $50,000 or less and assets of $250,000 or less generally may file a Form 1023-EZ. The 1023-EZ is a streamlined version of Form 1023. If your gross receipts are less than $5,000 a year, you don't have to file either Form 1023 or Form 1023-EZ to have tax-exempt status. After you file your form, the IRS will send you an official Determination Letter recognizing your organization's tax-exempt status.
File for tax-exempt status at state and local levels. After your legal defense fund has 501(c)(3) status with the IRS, you can use that status to apply for tax-exempt status with your state and local governments. The National Association of State Charity Officials has information on its website regarding how to become exempt from state or local property taxes in each state, as well as how to register with the state's charity agency. You may have to complete additional applications for unemployment insurance or if you want to be exempt from other taxes such as sales tax or property tax.
Register with your state's charity agency. Most states also require non-profit organizations, including charitable trusts and legal defense funds, to register with a state charity agency or board. Generally you must register with your state's charity agency even if you don't have tax-exempt status. Typically you must register with a state's agency before you start fundraising or soliciting donations within that state. If you plan on soliciting donations online, you should check every state's rules to determine whether you need to register with the agency in that context, or whether they only require registration for live solicitations of donations.
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