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Charitable trusts in New York

Some people in New York might wish to set up a charitable trust so they can donate assets and income earned through it to various designated charities. It is important when people are wanting to set up a trust for this function that they do it in such a way as to avoid potential tax implications.

The IRS tax code provides that a charitable trust is not a charitable organization, and thus any income the trust makes is subject to excise taxes. Charitable organizations, on the other hand, are exempt from excise taxes. It is possible for a trust to receive designation as a charitable organization, however.

When a charitable trust donates all of its assets and income to various charities, the trust will not be considered charitable while the estate is administered and settled. Similarly, when a charitable trust seeks exemption from taxes as a charitable organization, it will be considered to have been organized from the first day it became subject to the tax code provisions.

People who are wishing to establish such a trust may benefit from discussing how to do so with an estate planning attorney. Trusts may be used as either the primary or secondary vehicle through which one may pass assets to intended beneficiaries. Trusts can also be used to avoid the future probate of an estate and the corresponding expenses as well. When setting up a trust, it is important to choose one that meets the goals of the grantor and protect the assets held by the trust from potential estate taxes.

Source: IRS.gov, "Charitable Trusts", November 11, 2014

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