How to Set Up a Charitable Trust in California

A charitable trust is a smart way to support the causes you care about while enjoying tax benefits. It allows you to contribute assets to charity, fulfill your philanthropic goals, and even provide income for your family.

Setting one up in California requires different steps, such as choosing the right trust type, preparing the trust document, meeting legal requirements, etc. This article breaks down those steps to make the process easier to understand.

Since 2001, Desert Law Group has been a trusted partner in estate planning, charitable planning, and trust administration, offering clear and compassionate guidance to thousands of families.

What is a Charitable Trust?

A charitable trust is a legal arrangement where you transfer assets—such as money, property, or investments—into a trust, specifying how they’ll benefit charitable organizations.

The trust can provide income to you or your family during your lifetime, with the remaining assets going to charity. It’s a win-win for those looking to balance personal financial needs with a philanthropic vision.

Types of Charitable Trusts in California

There’s no one-size-fits-all approach to charitable giving, and California offers several trust options to meet various goals. Here are the main types:

  1. A Grantor Trust provides immediate tax deductions for contributions, but you remain responsible for taxes on income generated by the trust while retaining some control during your lifetime.
  2. A Charitable Remainder Trust (CRT) pays income to you or your beneficiaries for life or a set length of time, with the remaining assets going to your chosen charity. This is ideal for those seeking an income stream while supporting a worthy cause.
  3. A Charitable Lead Trust (CLT) provides income to a charity for a specified period, and then at the end of the term, transfers the remaining assets to your beneficiaries. This is a way to balance philanthropy with income needs and wealth preservation.
  4. A Charitable Gift Annuity (CGA) involves donating assets to a charity in exchange for fixed, lifelong payments, offering financial stability and a meaningful contribution to support charitable organizations.
  5. A Donor-Advised Fund (DAF) is a simpler alternative to these trusts, allowing you to donate to a managed fund and recommend distributions over time to charities.

How to Set Up a Charitable Trust in California

Ready to establish a charitable trust? Here’s a step-by-step guide:

1. Determine the Trust Type

The first step is deciding which trust fits your goals. Do you want income during your lifetime (CRT)? Or, would you prefer that the charity receives funds upfront while leaving assets for your heirs (CLT)?

If simplicity is key, a DAF might be the way to go.

2. Define Your Charitable Purpose

Think about the causes or organizations you want to support. This could range from environmental protection to education or health initiatives. Be as specific as possible to ensure your wishes are followed.

3. Draft the Trust Document

This is where an estate planning attorneys like us come in. The trust document outlines everything: beneficiaries, terms, asset distribution, and management. It’s critical to get this right to avoid future legal or tax issues.

4. Register with the State

In California, you need to file Form CT-1 with the Attorney General’s Registry of Charitable Trusts within 30 days of receiving charitable assets. The filing includes:

  • A $50 initial registration fee
  • Founding documents (e.g., articles of incorporation, bylaws, or trust instrument)
  • IRS Form 1023 or 1024 (if applying for tax-exempt status) and the IRS determination letter (if available)

Failing to register on time could result in penalties, so you must act promptly.

5. Transfer Assets

Once the trust is established, you’ll need to transfer your assets into it. This could include cash, real estate, stocks, or other valuables. Be sure the transfers are legally executed to avoid complications.

6. Appoint a Trustee

A trustee manages the trust’s assets and ensures compliance with its terms. Choose someone reliable and experienced, whether it’s a trusted individual or a professional fiduciary.

7. File Necessary Forms

To establish tax-exempt status, you’ll need to file the appropriate IRS forms, such as Form 990. Compliance with state and federal reporting requirements is also essential to keep the trust in good standing.

8. Maintain Ongoing Compliance

Running a charitable trust isn’t a one-time effort. California requires annual reports (Form RRF-1) and other filings to remain compliant. Failure to meet these obligations can result in penalties or loss of tax-exempt status.

Don’t Delay Your Charitable Impact: Contact Desert Law Group

If setting up a charitable trust sounds like the right choice for you, Desert Law Group is here to help.

Since 2001, we’ve been helping Californians with personalized estate planning solutions. Our compassionate, knowledgeable team can guide you through the entire process, ensuring your goals are met with clarity and care.

Call us today at 760-239-5661 to schedule a consultation. Let’s work together to make a lasting impact on the causes that matter most to you.