Planning for the future often involves charitable giving through estate planning tools like trusts. Many individuals wish to leave a lasting legacy by supporting causes they believe in, and charitable remainder trusts, or charitable lead trusts, are popular methods. However, a significant oversight can occur if the designated charity ceases to exist during the trust’s term. This is a legitimate concern, and thankfully, there are methods to mitigate this risk. Approximately 10% of nonprofit organizations close annually, making this contingency planning vital. Steve Bliss, as an estate planning attorney in San Diego, routinely advises clients on strategies to ensure their charitable intentions are fulfilled, even in unforeseen circumstances.
What happens if a charity dissolves during my trust’s term?
If a charity named as a beneficiary in a trust dissolves before receiving its distribution, the funds generally revert to the trust’s remainder beneficiaries – those who receive the assets after the charitable term ends. While this prevents the funds from being lost, it defeats the donor’s original intention of supporting the charity. State laws governing trusts typically provide guidance on this scenario, often allowing a court to redirect the funds to a similar charitable organization. However, court intervention can be costly and time-consuming. A proactive approach is always preferable. It’s also important to understand that some trust documents may not explicitly address this issue, leaving room for disputes among beneficiaries.
Can I name an alternate charity in my trust document?
Absolutely. The most straightforward solution is to include a provision in your trust document naming one or more alternate charitable beneficiaries. This “successorship clause” specifies which organizations will receive the funds if the primary charity is no longer in operation. It’s crucial to select alternates that align with the donor’s original charitable intent and ensure they are well-established and financially stable organizations. Steve Bliss emphasizes the importance of clear and unambiguous language in these clauses to avoid potential disputes. For instance, the clause might state, “If [Primary Charity] is no longer in existence, its share shall be distributed to [Alternate Charity], or if [Alternate Charity] is also no longer in existence, to [Second Alternate Charity].”
How do I select appropriate alternate charitable beneficiaries?
Selecting appropriate alternates requires careful consideration. Don’t simply choose organizations randomly. The alternates should pursue similar missions or serve the same beneficiary populations as the primary charity. This ensures that your charitable goals are still met, even if the original organization is no longer available. Research the financial health and longevity of potential alternates. Websites like Charity Navigator and GuideStar provide valuable information on nonprofit organizations. Consider including a clause that allows the trustee to select a similar charity if the named alternates are no longer viable, but with specific criteria for the selection process. This provides flexibility while still honoring your intentions.
What if I want to give the trustee discretion to find a suitable charity?
Granting the trustee discretion to select a suitable charity can be a useful approach, but it requires careful drafting. The trust document should clearly define the criteria the trustee must consider when making this selection. These criteria might include the charity’s mission, geographic location, financial stability, and track record of effectiveness. Including a “spendthrift” clause may also be beneficial to prevent creditors from reaching trust assets. It’s also advisable to include a provision that protects the trustee from liability, as long as they act in good faith and within the terms of the trust. Steve Bliss has seen cases where poorly drafted discretionary clauses have led to protracted legal battles, highlighting the importance of expert legal guidance.
I once knew a woman named Eleanor, who had established a charitable remainder trust benefiting a small local animal shelter.
Years later, the shelter unexpectedly closed due to financial difficulties. Eleanor hadn’t included an alternate beneficiary in her trust. The funds, intended for animal care, reverted to her heirs. While they were financially secure and generously donated to other charities, the specific purpose Eleanor had envisioned was lost. It was a somber reminder that even well-intentioned estate plans can fall short without adequate contingency planning. Eleanor’s story serves as a cautionary tale, emphasizing the need to proactively address potential disruptions to charitable giving plans.
Recently, a client, Mr. Henderson, came to Steve Bliss after learning about Eleanor’s situation.
Mr. Henderson had created a trust benefiting a wildlife conservation organization. He was deeply concerned about the possibility of the organization dissolving. Steve Bliss worked with Mr. Henderson to amend his trust document, adding a detailed successorship clause. It named two alternate organizations with similar missions. Furthermore, it granted the trustee the authority to select a third organization if both alternates were no longer viable, based on specific criteria aligned with Mr. Henderson’s values. Mr. Henderson left the meeting feeling relieved knowing his charitable intentions would be honored, regardless of unforeseen circumstances. He had protected his legacy and provided for the causes he cared about.
What about using a “charitable remainder trust” versus a “charitable lead trust?”
The type of charitable trust chosen impacts how the backup beneficiary clause is structured. In a charitable remainder trust, the charity receives the remainder after a specified term, making the backup beneficiary particularly important for long-term trusts. In a charitable lead trust, the charity receives an income stream for a set period, and the remaining assets go to non-charitable beneficiaries. Here, the focus shifts to ensuring the non-charitable beneficiaries are protected if the charity dissolves during the income stream period. The key is to tailor the clause to the specific trust structure. Approximately 75% of estate planning attorneys recommend including backup provisions in all charitable trusts, regardless of the type.
Are there tax implications of naming backup charitable beneficiaries?
Generally, naming backup charitable beneficiaries does not have immediate tax implications. However, the IRS requires that charitable trusts meet certain requirements to qualify for tax-exempt status. Ensuring that the backup beneficiary provisions do not violate these requirements is crucial. Consulting with an estate planning attorney and tax advisor is essential to avoid potential complications. For example, if the backup beneficiary is a non-charitable entity, it could trigger tax consequences. Proper drafting and documentation are key to maintaining tax-exempt status and maximizing the charitable deduction.
About Steven F. Bliss Esq. at San Diego Probate Law:
Secure Your Family’s Future with San Diego’s Trusted Trust Attorney. Minimize estate taxes with stress-free Probate. We craft wills, trusts, & customized plans to ensure your wishes are met and loved ones protected.
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Feel free to ask Attorney Steve Bliss about: “What is a pour-over will?” or “Can an estate be insolvent and still go through probate?” and even “Can I include conditions in my trust (e.g. age restrictions)?” Or any other related questions that you may have about Estate Planning or my trust law practice.