## Charitable trusts in California **Charitable trusts** combine philanthropy with tax planning. They provide income tax deductions, estate tax reduction, and (in some structures) ongoing income — while ultimately benefiting charity. ## Two main types **Charitable Remainder Trust (CRT):** - Donor transfers assets to trust - Trust pays donor (or other beneficiary) income for life or term of years - At end of term, remainder goes to charity - **CRAT (Annuity)** — fixed dollar amount to donor - **CRUT (Unitrust)** — fixed percentage of trust value - Benefits: immediate charitable income tax deduction; capital gains tax deferral; estate tax reduction; ongoing income **Charitable Lead Trust (CLT):** - Trust pays charity for term of years - At end of term, remainder goes to family - **CLAT** — fixed annuity to charity - **CLUT** — fixed percentage to charity - Benefits: gift / estate tax reduction for transfers to family; charitable deduction; "locking in" interest rates ## Other charitable vehicles **Pooled Income Funds** — Donor contributes to trust pool managed by charity; receives life income. **Charitable Gift Annuities** — Donor gives to charity in exchange for fixed annual income. **Donor-Advised Funds (DAF)** — Donor contributes to fund managed by sponsoring charity; receives immediate deduction; recommends grants over time. **Private foundations** — Family-controlled charitable entity; more control but more regulation. **Supporting organizations** — Public charity supporting one or more named charities. ## Tax benefits **Income tax:** - **Immediate charitable deduction** for present value of charity's interest - **CRT** — limited to AGI percentages (50% for cash, 30% for appreciated property) - **5-year carryforward** of unused deductions **Capital gains:** - **CRT defers / eliminates capital gains** when funded with appreciated assets - Donor avoids tax on appreciated property; trust sells without tax **Estate tax:** - **Charitable deduction** for amounts passing to charity - **Federal estate tax** — currently exempts ~$13.6M (2024); larger estates use charitable trusts - **State estate tax** — many states have lower thresholds; charitable deduction helps **Gift tax:** - **CLT** efficiently transfers wealth to family at reduced gift-tax cost **Generation-skipping transfer (GST) tax:** - Charitable trusts can fit into multi-generational planning ## Common scenarios **1. Highly-appreciated stock holder.** Founder with millions in stock; wants to diversify without immediate capital gains tax. CRT lets them sell, defer tax, get income, and benefit favorite charities. **2. Real estate investor.** Wants to retire; sell appreciated property without large tax bill. CRT funded with property; trust sells; income to donor. **3. Wealthy estate planner.** Wants to maximize family wealth + minimize estate tax. CLT pays charity for term; remainder to family with reduced gift / estate tax. **4. Donor wanting income now + charity later.** CRT structure provides life income + ultimate charitable gift. **5. Retiree with required minimum distributions.** **Qualified Charitable Distribution (QCD)** — Up to $105,000/year (2024) directly from IRA to qualified charity counts as RMD without taxable income. ## CRT mechanics in detail **Setup:** - Irrevocable trust - Donor (or beneficiary) receives income for life OR for term up to 20 years - Remainder MUST go to qualified 501(c)(3) charity - 5%-50% payout to non-charitable beneficiary - 10% minimum present value to charity (passes IRS "10% test") **Tax flow:** - Donor takes immediate deduction equal to charity's projected remainder - IRS "7520 rate" sets discount rate - Trust generally tax-exempt as charitable trust - Income to donor taxed under "4-tier system": 1. Ordinary income (highest taxable) 2. Capital gains 3. Tax-exempt income 4. Return of corpus (no tax) ## CLT mechanics in detail **Setup:** - Irrevocable trust - Charity receives payments for term of years - Remainder to non-charitable beneficiary (typically family) - No 10% rule (unlike CRT) **Tax flow:** - Grantor CLT — donor takes upfront deduction; donor reports income - Non-grantor CLT — trust pays tax on income - Gift tax on remainder amount calculated using IRS 7520 rate - Lower 7520 rate = bigger gift tax discount ## When charitable trusts make sense - Substantial charitable intent - Highly-appreciated assets - Estate above federal exemption ($13.6M+) or state threshold - High-income donor needing tax deduction - Long-term planning horizon - Sophisticated tax planning desired ## When they don't - No charitable intent (gimmick rarely worth it) - Limited assets - Need for liquidity / control - Simple estate plan needs ## Administration Charitable trusts require: - **Annual tax returns** (Form 5227 for CRTs; 1041-A for CLTs) - **Annual income distributions** (CRT) per terms - **Investment management** with prudent investor rule - **State attorney general oversight** (some states) - **Trustee duties** — fiduciary responsibility to charitable purpose ## Administrative complexity - Setup: $5,000-$25,000+ legal fees - Annual tax preparation: $1,000-$5,000+ - Trustee fees: 0.5%-1.5% - Investment management fees Generally only worth it for trusts of $250,000+ value. ## What you should do If you're considering charitable planning in California: hire an estate-planning attorney AND a CPA experienced in charitable trusts. Most California estate-planning attorneys offer paid initial consultations. Many large charities (universities, hospitals, foundations) have planned-giving offices that help donors design CRTs / CLTs naming them as beneficiary — often at low or no cost to donor. --- *This guide is general information about federal and California law as of early 2026 and is not legal or tax advice. Charitable trusts are technical. Talk to a licensed California estate-planning attorney and CPA about your specific situation.*