What Is Not Allowed For Charitable Trusts?
If you are considering creating a charitable trust, it is very important that you understand exactly what is allowed, and more importantly what is not allowed in charitable trusts. These differences can often mean the difference between money saved, or money wasted in unnecessary legal fees and disputes that can be quite costly to clean up. In addition, consider that rules and guidelines that are broken can result in huge penalties and fines from the IRS and you have multiple reasons to ensure you are well acquainted with what you are not allowed to do. First, you should understand that charitable trusts must be used by a charity. This means that you cannot claim your great niece is a charity, nor is your favorite son a charity. Unless they have applied for all of the appropriate paperwork from the IRS, you cannot set up charitable trusts for them. You would simply be committing fraud and creating a huge problem for yourself at some point once it is discovered and part of your assets can be seized or even frozen. This is not a situation that most people are comfortable trying to accomplish. People generally work very hard for their assets and look forward to keeping everything themselves rather than giving it to the IRS.
Another thing that is important is the doctrine of cy pres. This means if the original charity you decided upon is no longer available, you can select a new charity. If this occurs, you are not able to change it to a private individual. Charitable trusts must remain charitable trusts even if the original charity is no longer in operation. Instead of using the original charity, it is time to select a new charity that will become the recipient of the funds and assets of the trust. While this may seem unfair, it is important to remember that a charitable trust is not revocable and is permanent. Consulting with your tax advisor or an attorney in your area can ensure that you are in complete compliance with all of the local laws of your area as well. While most charitable trusts follow the exact rules of the federal laws, there are sometimes additional rules and guidelines that are applied based upon the jurisdiction of the charitable trusts. This is something that can also create trouble if you are unaware of these guidelines or rules prior to creating the trust. This is a circumstance where appropriate research is essential to ensure you are not creating a problem for yourself later on. With more pressing issues at times, it is easy to allow the matters of charitable trusts to become less important; however, the consequences can be very expensive in the end. |