Texas Charitable Trusts

How Can Our MicKinney Estate Planning Lawyers Help You?

A Texas charitable trust is an organization formed to receive favorable federal tax treatment for a charitable purpose. In Texas, the process is easier than other states in forming a Texas Charitable Trust because we do not have a State income tax.

The federal government is always concerned with fraud in tax situations. Because fraud exists in the context of tax evasion, the government has rules for charitable trusts.

To learn more, read the information provided below. If you have questions, contact The Willingham Law Firm, PC today!

How Many Trustees Can I Have?

A Texas charitable trust should have more than one trustee. Restatement § 383. Rev. Rul. 66-219, 1966-2 C.B. 208, held that a 501(c)(3) organization is not precluded from exemption merely because the creator of the organization is the sole or controlling trustee or because the organization is controlled by one individual. The main concern is that the trust will benefit only the trustee’s interest if there is only one trustee.

Filing Documents

A Texas Charitable Trust does not require a filing like an LLC, limited partnership, or corporation. However, a Trust must keep orderly financial books and records and must file Form 1023, if it is to be exempt in Texas form federal income tax. This application must be filed within 15 months from the end of the month is which it was organized.

The following are other documents that must be in writing in order to have a valid charitable trust in the State of Texas:

  • Agreement
  • Declaration
  • Deed
  • Indenture
  • Instrument
  • Will (for testamentary trust)

Special Tax Rules for Trusts

Exempt trust are still taxable on UBTI. There are special tax rules for nonexempt charitable tax trusts and split-interest trusts. Also, some IRC 501 exemptions are not available to trusts. Furthermore, a revocable trust ordinarily cannot qualify for exemption under IRC 501(c)(3).

What Is the Difference Between a Charitable Trust & a Private Trust?

The following are differences between a Texas Charitable Trust and a private trust:

  • In a private trust the beneficiaries must be ascertainable within the period of the rule against perpetuities
  • A charitable trust must benefit a sufficiently large or indefinite class
  • A private trust has a limited term
  • An Attorney General may enforce a charitable trust

If you need help or more information, schedule a free initial consultation with our estate planning attorneys in McKinney, Plano, or Frisco.