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Estates With Charitable Trusts Must Satisfy IRS Rules

12/30/2022 | Trust, Trust Administration

The IRS maintains specific definitions concerning what constitutes a valid trust that can be included in a Californian estate. Although many people want to donate assets to charitable causes, the estate devices they employ to do so don’t necessarily benefit from the same tax protections a charitable organization might. For instance, charitable trusts that fail to satisfy the exclusion requirements demanded of public charities are usually deemed tax liable.

The taxes applied to charitable trusts depend on both their investment incomes and the dates of their founding. If someone creates a revocable trust while still living, and it changes to an irrevocable structure after they die, said trust will not be deemed charitable until a settlement period has passed. The IRS applies the same rule to trusts that were created by wills to disburse assets to charitable beneficiaries.

Trust contributors may need to pay regular federal excise tax on money they want to add to their charitable trusts. They can still seek deductions, but these have to be approved by the IRS. Because the agency can treat trusts as private foundations starting from a range of dates, such as when the trusts were created or when their grantors died, tax obligations may vary based on other circumstances.

Trust structures serve as a common means of giving money to charity, but they are not immune from legal requirements. Arranging a trust in a certain fashion may have a huge impact on what percentage of the assets it contains actually makes its way to the intended recipient. Before creating a trust explicitly or through a will, grantors may wish to speak with an attorney.

Source:, “Charitable Trusts“, November 11, 2014