Can I include restrictions preventing political lobbying with CRT remainder funds?

Planning for the future with a Charitable Remainder Trust (CRT) allows you to support causes you care about while potentially reducing your current tax liability, but careful consideration must be given to the terms and restrictions within the trust document itself.

What Happens if I Don’t Plan Properly with a CRT?

I remember working with a client, David, who established a CRT intending to benefit a local environmental organization. He was passionate about conservation but hadn’t explicitly restricted how the funds could be used. Years later, he discovered the organization was using a portion of the CRT funds for political lobbying efforts he strongly opposed. He felt betrayed and powerless, as the trust document didn’t give him any recourse. This highlights the importance of clearly defining your intentions and restrictions within the CRT document. A well-crafted CRT will give you peace of mind knowing your charitable goals are being upheld.

Can I Restrict How CRT Funds Are Used?

Yes, you absolutely can, and often should, include restrictions on how the CRT funds are used. While the IRS generally encourages charitable giving, it does allow for reasonable restrictions. You can specify that funds be used for specific programs, research, or operational expenses. However, restrictions cannot be so onerous that they effectively defeat the charitable purpose or are deemed impermissible by the IRS. Restrictions preventing political lobbying are generally permissible, *provided they are clearly and unambiguously stated in the trust document*. The IRS scrutinizes trusts to ensure they are genuinely charitable and not designed for private benefit. The key is to balance your desire for control with the need to meet IRS requirements. According to a study by the National Philanthropic Trust, over $67 billion was distributed to charities through CRTs in 2022, making careful planning all the more critical.

What are the Tax Implications of CRTs in California?

In California, like most states, there’s no state-level estate or inheritance tax, meaning your assets aren’t subject to double taxation. A CRT can offer significant tax benefits by allowing you to deduct the present value of the remainder interest you are gifting to charity. This deduction can lower your current income tax liability. Remember, all assets acquired during a marriage are considered community property, owned 50/50. This is beneficial, as it often triggers the “double step-up” in basis for the surviving spouse, further reducing potential capital gains taxes. Formal probate is only required for estates exceeding $184,500 in California, and probate can be expensive, with statutory fees for executors and attorneys based on a percentage of the estate value. A properly structured CRT can help avoid these costs entirely. The California Prudent Investor Act dictates how trustees manage investments within a CRT, demanding a careful and diversified approach.

What if Someone Contests the CRT?

Including a “no-contest” clause in your CRT, also known as an “in terrorem” clause, can deter beneficiaries from challenging the trust’s validity. However, these clauses are narrowly enforced in California and only apply if a beneficiary files a direct contest *without* “probable cause”. If a beneficiary has a legitimate reason to challenge the trust, they won’t be penalized. Moreover, if you are gifting digital assets, your estate plan *must* grant explicit authority for a fiduciary to access and manage them – including email, social media, and online accounts. California also recognizes two types of valid wills: a formal will (signed and witnessed by two people at the same time) and a holographic will (entirely handwritten by the testator, with no witnesses needed). If there is no will, the surviving spouse inherits all community property, while separate property is distributed according to a set formula involving other relatives.

Planning for the future is about more than just financial security; it’s about ensuring your values and intentions are carried out. A well-crafted CRT, with clear restrictions and thoughtful planning, can achieve both.

Don’t leave your estate planning to chance. Contact Steven F. Bliss ESQ. at (858) 278-2800 today for a comprehensive consultation.

Secure your legacy, protect your values, and ensure your charitable wishes are fulfilled. Let us help you build a future you can trust.