A charitable trust offers private donors a great deal of flexibility in terms of where their donations will go and in what time frame. If you are considering setting up a charitable trust in California, it’s a good idea to start with your goals.
A charitable trust is not a tax haven
While an individual can make a tax-exempt donation to a charitable trust, the proceeds of investments held by the trust are still taxable. If your charitable trust is making money from investments, an excise tax must be paid.
The power of a charitable trust is in the ability to stay private. While a charitable trust becomes a taxable entity as soon as it receives tax-exempt donations, a well-funded and well-managed charitable trust can be directed toward a variety of social challenges. This bulwark of estate law allows individual donors a tax exemption once they make their donation. However, a charitable trust is not under the same scrutiny as a public charity.
Getting the paperwork right
A charitable trust in California must file Federal Form 5227 and California Form RRF-1. While the federal extension for Form 5227 will cover the extension for the California form, it’s important to carefully review the California instructions to determine if the state requires a copy of the 5227.
When you set up the goal of creating a charitable trust, you want to be sure that your initial investment, your donations and your non-taxed proceeds from investments go where you want them to go rather than being caught up in tax notices of improper filing. An experienced tax attorney may help with this.
Get started on the correct path
Setting up your charitable trust correctly is critical to your future success. While it is possible to set up your charitable trust as an instruction to be acted upon in your will, getting it set up during your lifetime will reduce the risk of challenges for those who come after you. You may want to contact an estate law attorney to help you set up a trust that will contribute to your legacy both in your later years and after you are gone.