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How the IRS defines charitable trusts

California residents who wish to donate their estate to a charity may be interested in learning how a charitable trust works and how it may benefit them. Charitable trusts, as outlined in the Internal Revenue Code, are non-exempt trusts exclusively made for charitable interests and that are entitled to a charitable contribution deduction allowance. Unless charitable trusts meet the qualifications of a public charity status, the IRS considers charitable trusts to be private foundations.

As a private foundation, the private foundation excise tax provisions apply to a charitable trust. Thus, it is subject to the same provisions that all other exempt private foundations are subject to such as the rules regarding governing and termination. Moreover, a charitable trust must pay the excise tax on any net income from investments. A charitable trust that meets the IRS’s organizational test may become a tax-exempt charitable organization. The date the charity was organized is considered the day it initially began as a charitable trust.

Whenever the assets of a charitable trust are being distributed to the charitable beneficiaries by the fund’s administrator or executor, the IRS does not consider it to be a charitable trust during that time, except under certain provisions. If the trust was set up as a revocable trust or where a trustee has been appointed through a will to distribute the assets to the beneficiaries, the IRS will recognize the fund as a charitable trust only after a period has lapsed following settlement, and when the trust becomes irrevocable.

A trust is an estate planning tool that carries many advantages such as helping a family to settle a decedent’s estate without dispute and fulfilling the decedent’s wishes exactly. However, since there are many state laws surrounding such filings, it may be helpful to those considering setting up a charitable trust to retain the services of an attorney who has experience in estate planning matters and who can explain all the options available.

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


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