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Nonprofit Law/Charitable Remainder Unit Trust

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Question
I live in New York and would like to add funds to a CRUT I have with a charity whose assets have become low and seems to have become relatively inactive with about 1 1/2 million in annual income and with assets of just over 2 million.  Is my CRUT safe and should I add to it.  Also, what happens to my trust shouold the charity become inactive?  Thanks for your courtesy.

Answer
When we set up a CRUT with a major charity, like a State University, or other University, we are not concerned about the fiscal responsibility and whether the stream of promised payments would continue to come, as required in the contract.  You have a situation that is quite different in that the charity is what  would be considered "small".  Before you add funds to the CRUT I suggest that we obtain some assurances through documents and possibly other means, from the charity.  If you want to hire me for such work, email me directly and I will then quote you my fees.

One of the documents that I would need is the trust document because that would contain the answer to your question "what happens to my trust should the charity become inactive?"

The IRS has published, relating to CRUT's:
--- Start of excerpt ---
- A trustee or trustees must be appointed to
oversee the administration of the unitrust. Anyone may
serve as trustee of the unitrust provided that that person
is acceptable under the terms of the unitrust's governing
instrument and is not forbidden by state law. The grantor
may also serve as trustee subject to certain limitations.
--- End of excerpt ---
https://www.irs.gov/pub/irs-tege/eotopicg96.pdf (page 7)

You wrote you have a trust "with" a charity and I interpreted that to mean that the charity is the trustee.  If I am incorrect, please correct me and I will reply again.  A trustee has legal control over the assets of a trust, but is supposed to (and is legally required under oversight) to use the funds in a certain way.  If the Charity does not act, because they are not motivated to act (because, for example the charity is becoming inactive), then you would need to go to probate court division of the New York Courts unless the trustee appoints a successor trustee.  The situation becomes worse if the charity trustee acts improperly.  I am not here giving you my opinion that the management of that small charity is inebriated, but would you feel safe having an alcoholic nephew be a trustee even though the trust has instructions on how he is supposed to deal with the money?  That is why I would generally recommend in this type of situation that you, as the grantor (funder) of the trust, consult with me on whether we can change the trustee now from the charity to you (or some third party of your choice).

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather more information.

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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