Charitable Remainder Trusts and Charitable Lead Trusts: California Attorney General Registration Rules
Written by Jeffrey Davine
It is common knowledge in the nonprofit community that a charitable entity operating in California is required to register with the California Attorney General. The initial registration is accomplished by filing Form CT-1 with the California Attorney General and paying the registration fee. The Form CT-1 should be filed within 30 days of the charity receiving assets.
What about charitable remainder trusts and charitable lead trusts? Are they required to register with the California Attorney General? If we were to take a survey, the response from most people who advise CRTs and CLTs would probably be that neither type of trust is subject to these registration rules. Unfortunately, I would be included among these persons. Well, according to the California Attorney General, that would be incorrect.
California Government Code Section 12585(a) provides as follows:
Every charitable corporation, unincorporated association, and trustee subject to this article shall file with the Attorney General an initial registration form, under oath, setting forth information and attaching documents prescribed in accordance with rules and regulations of the Attorney General, within 30 days after the corporation, unincorporated association, or trustee initially receives property. A trustee is not required to register as long as the charitable interest in a trust is a future interest, but shall do so within 30 days after any charitable interest in a trust becomes a present interest.
According to Government Code Section 12581, Government Code Section 12585(a) applies to various types of charitable entities including charitable corporations, unincorporated associations, trustees, and other legal entities that holding property for charitable purposes.
The California Attorney General’s view is that the second sentence of Government Code Section 12585(a) requires a Trustee of a CRT or a CLT to file Form CT-1 when the trust makes current charitable distributions.
In the CLT context, current charitable distributions are made soon after the CLT is funded.
In the CRT context, current charitable distributions are made when the CRT terminates and its assets are distributed to the CRTs charitable remainder beneficiaries. Current charitable distributions, however, can also be made prior to the CRT’s termination. This can occur where, for example, a CRT names a charity as a partial unitrust recipient. Although this is not common, it can happen. In both of these situations there is a current charitable distribution and the registration obligation will be triggered.
A Trustee having to register a CLT or CRT with the California Attorney General is somewhat counterintuitive, especially in the context of a CRT that is in the process of being liquidated and it activities wound up. Notwithstanding this surprising result, it does appear to be the California Attorney General’s position.
According to our communications with the California Attorney General, in addition to filing the Form CT-1, the Trustee of a CLT and a CRT must annually file Form RRF-1 until the CLT or CRT completely terminates and it no longer has any assets. At that time, the Trustee is required to notify the California Attorney General that the CLT or the CRT is no longer in existence.
Although we have not heard of the California Attorney General imposing fines or other penalties on the Trustee of a CLT or a CRT for not complying with these registration requirements, that doesn’t mean that they cannot do so. As a result, each Trustee of a CLT or a CRT would be well advised to satisfy these registration obligations and submit the necessary documentation to the California Attorney General when making current charitable distributions.*
*Special thanks to Bill Knox, who is the Director of Technical Consulting with TIAA Kaspick, for contributing to this post.