CSQ ADVISOR
Kent E. Seton, Esq.
Managing Partner, Seton & Assoc.
Kent E. Seton, Esq., an entrepreneur at heart, started his law career simultaneously with the launch of a separate online venture that quickly grew into one of the largest nationwide providers preparing the paperwork for creating 501(c)(3) organizations. At its height, this online company was forming over 250 501(c)(3) organizations per month. At the same time, Mr. Seton also steadily grew his law practice in the Beverly Hills and outlying areas and has become one of the foremost attorneys representing charities on tax, corporate governance, and legal matters concerning fundraising. Not only does he regularly speak on legal topics, but, in the last several years, has also spearheaded a free monthly event featuring the most advanced thinkers in the nonprofit sector for the benefit of sharing resources, information, and networking for nonprofit leaders in the Los Angeles area. Mr. Seton hosts these functions to give back to the nonprofit community.
310/557.1923, Ext. 201
kseton@sblservices.com
www.setonlawgroup.com
Maximize The “Good” of Your Charitable Trust
The use of charitable trusts to “hold assets in trust” for a charitable beneficiary has been around for decades. There are those who believe that, were it not for the advantageous tax benefits of charitable trusts, charities would have lost a valuable source of funding. Although we are now in the era of the repeal of the estate tax, for most of recent history, and quite possibly the future, there has been an estate tax which allowed high net worth individuals to bequeath monies to charities in order to carry out their philanthropic aspirations as well as their tax planning strategies. Each philanthropist dedicated monies and property to those charities suitable to their own personal tastes and desires.
Legally, in order to form a trust, the “settlor” (i.e., the one “setting up the trust” with his/her assets) makes his or her express statements concerning the use of the charitable donation; such statements are called “donor intent,” a pivotal concept. Many cases have dealt with legal disputes by the estates of deceased donors concerning this notion of donor intent, and alleged breaches of such intent. That being said, when hiring a legal practitioner to help structure your charitable trust, you want to ensure that the attorney understands the intricacies of donor intent, because as we all know, after you die there is no way to get legal testimony from you to explain your intentions. Such donor intent, and the manner and method of expressing it, can be absolutely critical to ensure that the money you have so generously bequeathed fulfills your philanthropic objectives.
Those who have given significant sums of monies (considering their available resources) during their lifetime well know that giving is serious business. No one wants their contribution to be used for unintended purposes or to give their money to recipients unable to fulfill their promises. Thus, in structuring a trust, it is vital to nominate trustees who you not only trust, but who are professionally competent and knowledgeable about philanthropy to ensure your vision, passion, and intent are carried out. Charitable trusts result in charitable gifts, and the manner in which you set up your trust can significantly impact the amount of resulting good. Therefore, paying attention to the structure of the gifts to be made via your trustee and trust can help maximize the charitable effect you have.You must also choose the legal practitioner who is drafting your trust wisely. Specifically, you may not want to hire a practitioner who solely functions as an estate planning lawyer, because although they can handle trust basics more than competently, when it comes to charitable trusts, it may be beneficial to engage a lawyer who specializes in philanthropy to review those portions of your trust concerning charitable giving.
For those reading this article, I do not anticipate any intentional misuse of charitable trusts, but be mindful that even unintentional violators of the following rule can suffer serious consequences. Once you place assets into a charitable trust that is either irrevocable by its terms or upon your death, any uncharitable use of the assets is an absolute violation of both governing California and Federal law.
Please note also that within the broad category of charitable trusts, there are subclasses which should be considered. A good practitioner will help you determine the specific subclasses that might be applicable based on various factors comprising your trust. For example, as we know, certain assets are income producing. Trusts often deal differently with the treatment of such income and its distribution, as contrasted with the underlying assets, which are being held in trust. This is only meant to alert you to such distinctions which should, along with all economic and charitable components of your trust, be discussed further with your legal and financial advisors.
Another issue to be aware of is the creation of private foundations through trusts. It is common for charitable trusts created by high net worth individuals to, as a feature of such trust, create a private foundation. A private foundation is controlled by certain person(s) designated by the settlor to be funded from the assets of the charitable trust. There are many intricacies concerning the rules and regulations of private foundations. For example, assets held by private foundations must be distributed according to certain mandatory distribution requirements (i.e., the 5% rule).
Overall, if you are thinking about philanthropy and desire to maximize your charitable impact and the “good” you cause, make sure you think very carefully about who legally records your vision to effectuate your intent, whether during your lifetime or after.
