Charitable Trusts – Laws to Consider
At the heart of a charitable trust is the leaving of your legacy to causes you wish to support. This type of trust is an excellent way to give back to the community while also minimizing the tax exposure of your estate. However, in order to give maximally and keep your estate’s tax burden down, it must be properly constructed. This way, it will adhere to the laws governing tax-exempt status.
The Charitable Trust Act
Any trustee in the state of Illinois must register with the Attorney General’s Office if they held $4,000 or more in charitable assets in the previous year. Under the Charitable Trust Act, a “trustee” could be virtually anyone—individuals, organizations, corporations, partnerships, estate representatives, and anyone else who holds charitable assets is considered “charitable trust.” On the other hand, hospitals, government organizations, and schools are all exempt from this law.
Forms CO-1 and CO-2 must be filed with the Attorney General within six months of receiving charitable assets, and certain fees must also be paid. A simplified CO-2 (or AG990-IL for trusts holding more than $25,000) must be filed every year thereafter. Religious organizations can file a CO-3 exemption form to avoid having to file annually.
The Solicitation for Charity Act
Additionally, any organization or individual who solicits funds for charitable purposes within the state of Illinois must register with the Attorney General. The process for filing is similar to that set forth under the Charitable Trust Act, only with a few extra provisions. These provisions cover fundraisers, solicitors, and consultants, and they require extra paperwork and fees on top of what is required above.
Professional fundraisers must renew their registration yearly, and professional solicitors must work for a professional fundraiser. Professional fundraising consultants only have to register every two years, but they must also fill out more paperwork to show they have no control or custody over contributions.
Tax Laws
Under IRS code 4947(a)(1), a charitable trust is treated as a private entity (and is therefore taxed as one) unless it meets certain requirements, such as supporting public charities. A ruling from the IRS can grant tax-exempt status under this part of the law. Otherwise, the trust is subject to private foundation excise taxes.
Any trust or charitable organization that seeks tax-exempt status is subject to the tangle of regulations set forth by the IRS, so it’s vital to seek legal counsel when structuring these organizations.
Parties to Contact
When forming a charitable trust, there are several parties you will need to contact. These are:
- The Illinois Office of the Attorney General (as described above)
- The Secretary of State’s Department of Business Services, Corporation Division
- The Internal Revenue Service to apply for tax-exempt status under IRC 501(c)(3) and other laws
- The Illinois Department of Revenue for exemption from sales tax
In addition to these government organizations, one more party you need to contact is a competent estate planning attorney to help you navigate the maze of legal requirements and regulations related to charitable trusts. Hart David Carson, LLP, can walk you through this process and ensure that your philanthropic contributions provide the maximum benefits possible.