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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I have a unique question. We have a family trust. My sister

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I have a unique question. We have a family trust. My sister and I are ordained ministers with non profit organizations (church). My father (per my grandfathers will) is allowed to donate the remainder of a trust to a non-profit organization of his choice at the end of 2017. Our attorney keeps putting me off and is saying there may be a conflict of interest in being able to do that. My question is, if it is a case of self-dealing, is there a way around this to be able to donate the funds to my sister and I
JA: Since estate law varies from place to place, can you tell me what state this is in?
Customer: California
JA: Has anything been filed or reported?
Customer: No
JA: Anything else you want the lawyer to know before I connect you?
Customer: No

Hello, my name is***** goal is to give you a complete & accurate answer. I am working on your request now & I will respond as soon as possible.

Customer: replied 9 months ago.
Hi Stephen,Thank you for your time

There are a few issues to consider.

1. What flexibility does your father have with respect to the Trust while he is alive. Are his withdrawals limited?

2. Are you and your sister mentioned in the Trust as being entitled to anything for any reason and is there a Trustee other than your father?

3. I have to agree with your attorney, I doubt that the Trustee would be able to make a distribution to a non-profit organization that employees his children.

4. Do you and your sister have cordial relationships with your father? It is somewhat unusual for a Trust to be drafted to exclude heirs in favor of a charity without first considering the needs of the heirs (you as grandchildren). Is there some reason for this?

Customer: replied 9 months ago.
My father has a co-trustee so his withdraws are limited.My sister and I will dissolve the trust after my fathers passing.My sister, myself and my father are all close and have a good relationship. My grandfather passed away in 1995, I don't think there is anyone to exclude from the trust. The donation just needs to be made to a non prophet in riverside county which both my sister and I reside.Our trust attorney said it's possible to make that donation but his first inclination was it may be considered self dealing.
Customer: replied 9 months ago.
The trust was drafted before my sister and I had the organizations back in 1980 before I was born, my sister was just 1

When you say you and your sister will dissolve the Trust, will there be anything left?

Didn't you say that your father had to donate the balance of the trust to a non-profit by the end of 2017? If so, the Trust will dissolve itself by distributing everything by the end of 2017.

Apparently if there is a Co-Trustee, he/she or a bank whomever it is, will not sanction a distribution to a related party. That could create significant legal issues and violate Trust law in California.

Customer: replied 9 months ago.
I'm sorry for that confusion, there are multiple trusts set up. One that will be donated to a non profit and another that would be dissolved.The co trustee is our estate CPA.Our attorneys said they are looking for a way around the self dealing issue. Was wondering if it is an issue of self dealing and if so, do you have any suggestions how we can work around that.Maybe donating to a friend and the friend donates some to our churches?

Normally, a provision such as you describe, would require that the donation be made directly to a 501(c)(3) charity.

Since churches aren't actually required to obtain/confirm 501(c)(3) status, it is possible that a church may not qualify if that is in the provision; many churches obtain formal 501(c)(3) status by filing the appropriate Form with the IRS (Form 1023).

Are these churches you established?

Customer: replied 9 months ago.
The churches we would like to donate the funds are to churches set up by my wife and I as well as my sister and her husband.We also have friends with non profits and wondering if worse case scenario can possibly donate to them and they donate some funds to ours.It would definitely be ideal to donate directly to our churches that are 501c3. It is not in the will or trust that it cannot be donated to a church.

Unfortunately, under the circumstances you describe, if the funds make their way to your churches, what is at risk is the churches' tax exemptions.

I don't have any magical way around doing what you want to do.

There are all kinds of intricate rules to prohibit just what you're suggesting.

There's a "doctrine" potentially in play called a "step transaction" where if an interim step were employed, such as donating to a friend's church or other not-for-profit organization who then passes the money on to your church in whole or in part via a series of transfers, in effect what happens is that only the first and last "steps" are considered, so it becomes the same thing as making the contribution to your organization directly.

Any "loophole" that exists will have to come from the provisions of the Trust. Anything else, where you and your sister's organizations wind up with the funds will put your respective tax exemptions at risk.

Sorry, but I've done a lot of work with not-for-profit organizations and you must be really very careful that you don't do anything to benefit any director or officer of the organization with money donated to the organization unless it is for legitimate services at reasonable rates.

Steve G.

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Thanks very much,

Steve G.

Thanks very much, I appreciate it!

Steve G.

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