Public Charitable Trusts in Pakistan: Promoting Social Welfare and Positive Change
Public charitable trusts in Pakistan play a pivotal role in uplifting communities and promoting social welfare. These trusts are established with the primary objective of benefiting society or specific segments thereof. By dedicating resources and efforts to address social issues, public charitable trusts contribute to the betterment of society, fostering positive change, and improving the lives of individuals in need.
Public charitable trusts in Pakistan are legal entities formed with the purpose of providing assistance, support, and resources for the betterment of society. They are usually established through a trust deed, wherein the settlor (the person creating the trust) outlines the objectives, governance structure, and utilization of funds for charitable purposes. The beneficiaries of these trusts can be diverse, ranging from disadvantaged groups, the underprivileged, education and healthcare sectors, environmental causes, and more.
Public charitable trusts in Pakistan serve as catalysts for addressing various social issues that impact communities. They actively engage in activities and programs aimed at combating poverty, promoting education, improving healthcare access, empowering marginalized groups, advancing environmental sustainability, and supporting cultural and artistic initiatives. These trusts often focus on the areas where government resources may be limited, providing vital support and filling gaps in services.
Public charitable trusts often focus on empowering marginalized communities by providing them with the necessary resources and support. They initiate skill development programs, vocational training, and entrepreneurship opportunities to uplift individuals from disadvantaged backgrounds. Additionally, these trusts may run rehabilitation centers for differently-abled individuals, homes for the elderly, and shelters for homeless individuals, providing them with a dignified and supportive environment.
To maintain public trust and confidence, public charitable trusts in Pakistan are now required to adhere to strict regulations and standards of transparency and accountability as will be discussed below. They are now subjected to specific financial audits, reporting requirements, and regulatory oversight to ensure that the funds are utilized for the intended purposes and that the trusts operate efficiently and effectively.
Public/Private Trust Registration Laws and Rules in Pakistan:
Before 2020, trusts were being established under the Trusts Act of 1882. But now, each province has full autonomy regarding trust registration and other trust-related deeds under the amendment. They are:
- The Islamabad Capital Territory Trust Act, 2020
- The Punjab Trusts Act, 2020
- The Sindh Trusts Act, 2020
- The Khyber Pakhtunkhwa Trust Act, 2020
- The Balochistan Trusts Act, 2020
Basic Requirements for Registration of a Public/Charitable Trust:
To create a charitable trust, three requirements must be met: the creator, the trustee, and the beneficiary. Unless the trust’s objectives are clearly stated, uncertainty will lead to its failure. Trusts created by public charities benefit society, or at least a certain segment of society. Trusts governed by public law are no different from private trusts. As opposed to private trusts, however, these trusts would remain in existence as long as they have a charitable purpose, regardless of their goals.
Conditions of a Public Trust:
The following criteria are essential to establishing a public trust:
- The trust must own property, whether it is cash or capital assets (land or buildings).
- Charity or social benefit must be the goal of the Public trust.
Therefore, a trust must meet these conditions or ‘certainties’ in order to be valid. However, public charities do not have the same requirements. As in private trusts, charitable trusts require certainty regarding the intention to declare a binding trust, and the assets to be bound by it are strictly required.
Private trusts will fail if their beneficiaries are not clearly specified, but public charitable trusts can be sustained regardless of their beneficiaries as long as there is a general trust intention for charity.
Establishing a trust for any lawful purpose is possible, and it can be revoked at any time. The Trust Acts 2020 (province wise) cover private acts of public charity, providing great flexibility to the trust creators. All areas of Pakistan are covered by the Trust Acts (of their respective provinces).
Importance of Legal Expertise in Trust Registration:
Registering a public charitable trust requires compliance with various legal formalities and regulations. It is crucial to seek legal expertise to ensure that the trust’s objectives are clearly defined, and all necessary legal documents are properly drafted. An experienced legal team can guide the trustees through the registration process and advise them on the best practices for governance, financial management, and reporting.
In addition, legal experts can help trustees understand the tax implications of the trust’s activities and ensure that the trust remains in compliance with the relevant laws and regulations. They can also assist in obtaining the necessary approvals and permissions from the government authorities, ensuring a smooth and efficient registration process.
Public charitable trusts in Pakistan hold immense importance in fostering positive social change and uplifting communities.The 2020 amendments to trust registration laws have provided more autonomy to each province, allowing for a more streamlined and region-specific approach to trust registration.
Our Legal Services in the Law of Trusts in Pakistan include:
- Trust Formation and Structuring: Our skilled team assists clients in establishing trusts by providing meticulous guidance on the legal requirements, documentation, and procedures involved. We ensure that your trust is structured in strict adherence to the relevant laws and regulations, guaranteeing its legal validity and effectiveness.
- Trust Registration: We understand the significance of trust registration in ensuring compliance and protection of your interests. Our professionals have extensive experience in navigating the registration process under the new framework of trust laws in Pakistan. We assist you in preparing and submitting the necessary documentation, liaising with the relevant authorities, and ensuring a seamless registration process.
- Trust Administration and Compliance: Our dedicated team provides comprehensive support in the administration and management of trusts, ensuring adherence to legal obligations and regulatory compliance. We assist in maintaining accurate accounting records, conducting third-party audits, and preparing financial reports in line with the requirements of the registering authority. Our focus is on ensuring your trust operates smoothly and complies with all necessary legal obligations.
- Trust Disputes and Litigation: In the unfortunate event of trust disputes or litigation, we offer expert legal representation and guidance to protect your interests. Our experienced litigators are well-versed in trust law and have a proven track record of achieving favorable outcomes for our clients. We employ negotiation, mediation, and litigation strategies tailored to your unique circumstances, ensuring the most effective resolution of trust-related disputes.
- Trust Amendment and Termination: We provide comprehensive legal advice and assistance in amending trust deeds to accommodate changes in circumstances or to address specific requirements. Additionally, we guide you through the process of trust termination, ensuring compliance with legal procedures and protecting the interests of all parties involved.
- Trust Advisory Services: Our trusted advisors provide strategic and practical advice on all aspects of trust law in Pakistan. Whether it’s trust management, asset protection, taxation implications, or compliance with evolving legal and regulatory frameworks, we offer expert guidance to empower you to make well-informed decisions regarding your trust.
- Trust Due Diligence: Our diligent team conducts thorough due diligence on existing trusts, assessing legal risks and compliance issues. We meticulously review trust documentation, assess the enforceability of trust structures, and provide detailed recommendations to mitigate potential risks and ensure legal compliance.
Private Trust Registration in Pakistan: We understand the importance and intricacies involved in setting up private trusts to safeguard assets and plan for the future. Our team of experienced lawyers provides comprehensive assistance to individuals and families seeking to establish private trusts in Pakistan.
Importance of Private Trusts in Pakistan:
Private trusts in Pakistan offer numerous benefits, such as asset protection, estate planning, and providing for beneficiaries’ financial security. They allow individuals to retain control over their assets while ensuring their distribution according to their wishes. Private trusts also provide a structured framework for the effective management and distribution of assets, protecting them from potential disputes or legal complications.
Our Services for Private Trust Registration:
- Comprehensive Legal Consultation: Our legal experts at Josh and Mak International offer personalized consultations to understand our clients’ specific needs and objectives. We assess the assets involved and guide our clients in choosing the most appropriate type of trust structure to achieve their desired outcomes.
- Drafting Trust Deeds: We draft meticulously crafted trust deeds that outline the terms and conditions of the trust, the rights and responsibilities of trustees and beneficiaries, and the distribution of assets. Our team ensures that the trust deed is in compliance with all relevant laws and regulations.
- Legal Documentation: We handle all the necessary legal documentation required for the registration of private trusts, ensuring that the process is smooth and efficient. Our attention to detail helps avoid potential delays or complications during registration.
- Liaison with Authorities: Josh and Mak International acts as a liaison between our clients and the relevant government authorities to facilitate the registration process. We ensure that all required documents are submitted promptly, and any queries from the authorities are addressed promptly.
- Tax Planning and Compliance: Our legal experts provide valuable advice on tax planning and compliance matters related to private trusts. We help clients optimize their tax liabilities while adhering to the tax laws and regulations.
- Ongoing Legal Support: Our commitment to our clients does not end with trust registration. We provide ongoing legal support and guidance to trustees to ensure the smooth administration and management of the trust, including compliance with reporting and regulatory requirements.
Trusts in Pakistan, a pivotal legal mechanism, serve as vehicles for advancing philanthropic endeavors and promoting social welfare. In essence, two distinct types of trusts exist: Private Trusts, established for the benefit of private individuals, and Public Trusts, dedicated to uplifting society or specific segments thereof. The foundation of a trust necessitates the presence of a creator/author, a trustee, beneficiaries, and trust property, which may encompass monetary funds or tangible assets.
Central to the operation of a trust are the trustees who constitute the governing body responsible for fulfilling the trust’s objectives, abiding by the creator’s instructions, and diligently managing the trust property, as laid down in the Deed of Declaration of Trust.
Traditionally, trusts were registered under the Trust Act 1882 (Act II of 1882), a federal statute embraced by all provinces and Islamabad, albeit with minor amendments. However, a significant transformation occurred in 2020 when each province, along with Islamabad, enacted distinct legislation governing the incorporation, registration, and functioning of trusts. These statutes, known as the 2020 Trusts Acts, encompass the Punjab Trusts Act, 2020 (Act XXI of 2020), the Sindh Trusts Act, 2020 (Act XXIX of 2020), the Islamabad Capital Territory Trust Act, 2020 (Act XXV of 2020), the Khyber Pakhtunkhwa Trust Act, 2020 (Act XXXIII of 2020), and the Balochistan Trust Act, 2020 (Act IV of 2020).
While the 2020 Trusts Acts share commonalities in substance, they diverge slightly in registration procedures. Each statute mandates that any trust operating within its jurisdiction, whether in a province or the capital territory, must be duly registered with the relevant provincial authorities, in compliance with the respective law.
By embracing the legal framework of trusts, individuals and organizations can channel their philanthropic visions into meaningful actions, creating a profound impact on society and promoting the betterment of communities. Trusts, guided by the 2020 Trusts Acts, play a crucial role in fostering a culture of giving, social upliftment, and collective progress in Pakistan.
At Josh and Mak International, we are passionate about delivering exceptional legal services in the Law of Trusts in Pakistan. Our commitment to excellence, deep legal expertise, and client-centric approach set us apart as a trusted partner for all your trust-related legal needs. Contact us today at aemen@joshandmak.com to experience our unparalleled services and achieve the utmost confidence and success in navigating the Law of Trusts in Pakistan.
Update 2023: Clarifying the Distinction between Private Trusts and Charities (Public Trusts) in Pakistan
There seems to be some confusion surrounding the differences between trusts and charities in recent queries we have received. After reviewing numerous trust deeds provided by our clients, it appears that there may be some misunderstanding regarding the registration of public charities under the new trusts legislation.
In one particular case, a charity/Public Trust originally registered under the Trusts Act 1882 was trying to re-register itself under the KPK Trusts Act 2020. However, it is important to note that the appropriate forum for registering a public charity in Pakistan is the Khyber Pakhtunkhwa Charities Act 2019. This act specifically governs the registration, administration, and regulation of charities, as well as the collection of charitable funds in KPK. It is tailored to address the unique needs and operations of charities, including fundraising appeals and fund collection.
As far as new Trust Registration is concerned for Private Trusts, the relevant registration will be under the Trusts Act 2020 (Province wise).
To provide clarity, let’s summarize the key distinctions between a Private trust and a Public Trust/charity:
Purpose:
- Trust (Private): A trust is established to manage and safeguard assets for the benefit of specific beneficiaries, in accordance with the terms and conditions outlined in the trust deed.
- Charity/Trust (Public): A charity is created to support and advance specific charitable purposes or causes, with the aim of providing public benefit, such as poverty alleviation, education advancement, healthcare promotion, or support for the arts.
Legal Status:
- Trust (Private): A trust is a private legal arrangement involving a settlor, trustee, and beneficiaries. Registration with a regulatory authority is not always mandatory for trusts.
- Charity/Trust (Public) : A charity is a formal legal entity that must be registered and recognized by the relevant regulatory authority in a specific jurisdiction. It must meet specific legal requirements and criteria to obtain charitable status.
Governance and Accountability:
- Trust (Private): The governance and accountability of a trust primarily rely on the terms specified in the trust deed and the trustee’s fiduciary obligations towards the beneficiaries.
- Charity/Public Trust: Charities operate within a distinct legal and regulatory framework that governs their activities. They often have a board of trustees or directors responsible for overseeing governance and ensuring compliance with relevant laws and regulations.
Tax and Financial Considerations:
- Trust (private): Income generated by a trust is typically distributed to the beneficiaries and subject to taxation at their individual levels.
- Charity/Public Trust: Charities may enjoy tax benefits and exemptions due to their recognized status. Donations made to registered charities can be tax-deductible, and charities themselves may be exempt from certain taxes. Financial transparency and accountability are of utmost importance for charities.
We hope this clarification helps the general public understand the differences between trusts and charities. If you have any further questions or require assistance, please feel free to contact us at aemen@joshandmak.com.
A review of the new legal regime of the Law of Public and Private Trusts in Pakistan
In 2020, Pakistan took a significant step forward in modernizing its legal framework surrounding trusts. The Trust Act of 1882, a remnant of the colonial era, was repealed and replaced by new trusts legislation enacted by the provinces of Sindh, Balochistan, Punjab, Khyber Pakhtunkhwa, and the Islamabad Capital Territory (ICT). The impetus for these new laws stemmed from recommendations by the Financial Action Task Force (FATF) to address money laundering and terrorist financing risks associated with trusts, including foreign trusts and Waqfs (Islamic charitable trusts) in Pakistan.
The introduction of the new provincial laws has brought about substantial changes to the registration process and record-keeping requirements for trusts. These changes are aimed at enhancing disclosure, data collection, and inspection measures by government authorities to effectively combat financial crimes.
Under the previous Trust Act of 1882, only trust deeds involving immovable property were required to be registered with provincial authorities under the Registration Act of 1908. No verification exercise was specified or carried out, and movable property trusts were exempt from registration altogether.
However, the new laws mandate the registration of all trusts, regardless of whether they involve movable or immovable property. The registration process involves verification by the registering authority, who examines the details provided by the trustee in the application for registration. These details include information about the trust’s purpose, author, property, trustees, beneficiaries, and any individuals exercising ultimate effective control over the trust.
Once a trust is registered, the laws of Sindh and Khyber Pakhtunkhwa stipulate that the registration must be renewed annually. Notably, a new category of trusts called “specialized trusts” has been exempted from this requirement in Sindh. The concept of specialized trusts was introduced through amendments to the laws of Sindh, Khyber Pakhtunkhwa, and the ICT in 2021. It encompasses trusts created for various purposes such as collective investment schemes, private funds, pension funds, real estate investment trusts, exchange-traded funds, private equity and venture capital funds, debt securities trusts, trusts related to securities issued by federal or provincial governments through capital markets, provident and gratuity funds, and employee benefit trusts. Specialized trusts undergo a different registration process, which entails the submission of a no-objection certificate from the relevant regulator containing trust particulars for verification.
The new laws also extend their reach to existing trusts. With the exception of specialized trusts in Sindh, Khyber Pakhtunkhwa, and the ICT, all trusts created under the Trust Act of 1882 or registered under the Registration Act of 1908, or any other trusts in the four provinces and the ICT, have to be re-registered within a specified timeframe to maintain their functionality.
In terms of record-keeping obligations, the new laws impose comprehensive requirements on trustees. Trustees are now responsible for maintaining proper accounts of the trust property and its income. This includes subjecting accounts to third-party audits and submitting financial reports to the registering authority on an annual basis. Additionally, any changes related to trust assets or individuals associated with the trust must be reported. The trustee is obligated to retain trust records and documents for at least five years after ceasing involvement with the trust.
At Josh and Mak International, we recognize the significance of these recent changes in trust legislation in Pakistan. We offer specialized legal services tailored to assist individuals and entities in navigating the complexities of trust law. Our team of experienced professionals is well-versed in the new registration requirements, record-keeping obligations, and compliance standards set forth by the provincial laws.
Whether you are establishing a new trust, seeking to re-register an existing one, or require expert advice on trust-related matters, our dedicated team is here to provide comprehensive support. Contact Josh and Mak International today to benefit from our profound knowledge and unrivaled expertise in trust law in Pakistan.
Law of Trusts in Pakistan post 2020: Updates and Challenges
The introduction of new trusts legislation in Pakistan marked a significant shift in the legal landscape. However, as with any new legal framework, there have been challenges and areas requiring further clarification. In order to provide a comprehensive understanding of the law of trusts in Pakistan, it is important to address these updates and practical challenges.
One notable area that demanded attention was the registration requirements and the scope of the new regime. Initially, the provincial laws stipulated that the author, trustee, and beneficiary of a trust could only be a “natural person.” This condition led to confusion regarding the status of trusts associated with non-natural persons and whether they fell under the purview of the amended regime. Amendments in 2021 addressed this confusion in the Sindh, Khyber Pakhtunkhwa, and ICT laws by removing the “natural person” condition. However, the position remains unchanged under the Balochistan and Punjab laws. Additionally, the ordinance through which the ICT trusts law was amended in 2021 has now lapsed and would need to be repromulgated to maintain its effect.
Another area that requires attention is the registration process under the new framework. Applicants in different provinces are facing various hurdles in meeting the new requirements. For instance, in Sindh and Khyber Pakhtunkhwa, the author of the trust and the trustees or their authorized representatives are required to appear in person and provide thumb impressions for registration. This can cause delays, especially when foreign parties are involved. Moreover, the Sindh and Khyber Pakhtunkhwa trust laws mandate the verification of credentials for foreign parties associated with the trust through the relevant embassy of Pakistan, which further adds to the time-consuming process.
The new application process also introduces the requirement for each member of the trust to provide criminal affidavits, affirming their non-involvement in any criminal activity and ensuring that the trust deed complies with the trust laws. However, this poses challenges, particularly for trusts created in the context of foreign financing, as foreign lenders are often hesitant to provide such affidavits due to internal credit department restrictions. Furthermore, delays have been observed due to the high volume of applications submitted for both new and existing trusts simultaneously.
At Josh and Mak International, we understand the intricacies and challenges presented by the evolving law of trusts in Pakistan. We are committed to providing up-to-date information and guidance as the law continues to develop and practical challenges find solutions. Our team of experienced legal professionals stays abreast of the latest developments, enabling us to offer reliable advice and assistance tailored to your specific trust-related needs.
As the law progresses and further clarifications emerge, we will update this page to ensure that you have access to the most accurate and comprehensive information on the law of trusts in Pakistan. Stay tuned for more insights and practical solutions as we navigate the ever-evolving legal landscape together.
AML and Trusts in Pakistan
The Securities and Exchange Commission of Pakistan (SECP) has published a Frequently Asked Questions (FAQ) document on how to identify and verify the beneficiaries in case of trusts as required under Regulation (7)2 of SECP AML/CFT Regulations 2018.
The FAQ document states that in the case of trusts, the regulated person should obtain the following information:
- Whether the trust is a public trust or a private trust
- The trust deed whereby the trust has been created
- Details of the settlor (this will also be available in the trust deed)
- The objects of the trust (this will also be available in the trust deed)
- The trustee of the trust (whether the trustee is an associated person of the settlor)
- A description of each class or type of beneficiary (this information may also be checked from the trust deed)
- Details of any possibility of influence of any other person on the trustee regarding management and control of trust property
In the case of a private trust, if the beneficiary of a trust is also the beneficial owner of the trust, identification and verification of the beneficiary is required. Otherwise, the name and CNIC of each beneficiary of a trust should be obtained.
The regulated person may obtain a declaration from the governing body/board of trustees/executive committee/sponsors on ultimate control, purpose, and source of funds, etc. for this purpose. Further, the documents as per Sr. No. 1 of the Annex 1 of the SECP AML/CFT Regulations, 2018 can be used for identification and verification of the settlor, the trustee, the protector (if any), the beneficiaries, and any natural person exercising ultimate ownership, ultimate control, or ultimate effective control over the trust under Regulation (7)2 of SECP AML/CFT Regulations 2018.
The FAQ document also states that the regulated person should take reasonable steps to verify the information obtained from the trust. This may include, but is not limited to, verifying the identity of the settlor, trustee, and beneficiaries through government records or other reliable sources.
The regulated person should also keep records of the information obtained and the steps taken to verify it for a period of five years from the date of the transaction.
