Charitable Remainder Trusts (CRTs) can, under certain circumstances, cover expenses related to dissolving a private foundation, but it’s a complex area of estate planning requiring careful consideration and professional guidance. The permissibility hinges on whether these expenses are considered “ordinary and necessary” in the administration of the trust and directly related to fulfilling the charitable purpose, and whether they are allowable under the CRT’s governing document. A CRT is an irrevocable trust that provides an income stream to a non-charitable beneficiary for a specified period, with the remainder going to a designated charity or charities. While the primary function is income distribution and eventual charitable gifting, the trust document can sometimes be drafted to allow for administrative expenses, which *could* include dissolution costs of a related foundation.
What Costs Are Typically Involved in Foundation Dissolution?
Dissolving a private foundation isn’t a simple process. It involves significant administrative and legal hurdles. Costs can include legal fees associated with preparing dissolution documents, accounting fees for a final audit, filing fees with state and federal agencies (like the IRS), and potentially the costs of transferring remaining assets. A comprehensive dissolution could easily range from $5,000 to $25,000 or more, depending on the foundation’s size and complexity. According to a recent study by the National Center for Philanthropy, approximately 15% of private foundations experience challenges navigating the dissolution process, often due to a lack of planning and unforeseen costs. These foundations were often smaller in size, less than $500,000 in assets, and lacked consistent legal counsel.
How Does a CRT Fit Into Foundation Dissolution Planning?
A well-structured CRT can provide a mechanism to address these dissolution costs. If a private foundation intends to wind down operations, it can transfer assets *into* a CRT. The CRT then distributes income to the foundation’s prior directors or officers (the non-charitable beneficiaries) for a defined term. The CRT document can specifically authorize the trustee to use CRT funds to pay for the reasonable expenses of dissolving the foundation—legal fees, accounting costs, filing fees, and so on. This is especially useful if the foundation lacks liquid assets to cover these costs directly. It’s crucial, however, that these expenses are clearly defined and reasonable. Overly generous or unnecessary expenses could jeopardize the CRT’s tax-exempt status or trigger penalties.
What Happened When the Peterson Foundation Tried to Cut Corners?
Old Man Peterson was a pillar of the community, establishing the Peterson Foundation years ago to support local arts programs. As he neared the end of his life, he decided the foundation had run its course. Instead of properly winding things down, his son, eager to avoid expenses, attempted a “quick and dirty” dissolution. He simply stopped making grants and tried to distribute remaining assets directly to family members. The IRS intervened, imposing significant penalties and forcing a lengthy legal battle. The foundation was forced to spend more on legal fees than it would have originally spent on a proper dissolution! It was a costly mistake born of a desire to cut corners, and it delayed the intended distribution of assets for years. The result was a complete loss of control and oversight.
How Did the Millers Successfully Leverage a CRT?
The Millers, after careful planning with Steve Bliss, chose a different path. They established a CRT shortly before beginning the dissolution of their family foundation. They transferred assets into the CRT, specifying that the income would be paid to the foundation’s former board members for five years. Critically, the CRT document explicitly allowed the trustee to use CRT funds to cover the legal and accounting costs associated with the foundation’s dissolution. The process went smoothly. The foundation was dissolved efficiently, the former board members received income as planned, and the remaining assets ultimately flowed to the Millers’ chosen charities. It was a testament to the power of proactive planning and a clearly drafted CRT document, and ensured that their philanthropic goals were met without unnecessary complications. Steve always said, “A little planning upfront saves a lot of headaches down the road.”
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
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Map To Steve Bliss Law in Temecula:
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
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Feel free to ask Attorney Steve Bliss about: “Are handwritten wills legally valid?” Or “What if I live in a different state than where the deceased person lived—does probate still apply?” or “What are the disadvantages of a living trust? and even: “How soon can I start rebuilding credit after a bankruptcy discharge?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.