Cut Taxes: California Charitable Trusts in Your Will

Why consider a charitable trust in your will?

A charitable trust can align your legacy with the causes you value while potentially reducing income, capital gains, and estate taxes. Properly structured, it can also provide lifetime or term income to you or your beneficiaries and deliver the remainder to charity, or the reverse. In California, these trusts can be established during life or created at death through your will or revocable trust.

Common structures: CRTs and CLTs

Charitable Remainder Trust (CRT): Pays income to one or more noncharitable beneficiaries for a period, with the remainder to charity. CRTs are generally tax-exempt under federal law, allowing appreciated assets to be sold inside the trust without immediate capital gains recognition, with tax characterized and reported to beneficiaries through distributions. See IRS guidance.

Charitable Lead Trust (CLT): Pays an annuity or unitrust amount to one or more charities for a period, with the remainder passing to noncharitable beneficiaries (often family). CLTs can be structured as grantor or nongrantor for different income tax results. See IRS guidance.

Both CRTs and CLTs must meet federal requirements on payout design, valuation, and the charitable status of beneficiaries to qualify for tax benefits.

Creating a testamentary charitable trust in California

You can direct your will or revocable trust to fund a charitable remainder or lead trust at death. Your document should specify the trust type and payout method (annuity or unitrust), the measurement lives or term, trustee powers, charitable beneficiaries (and alternates), and administrative provisions. Because probate and trust administration involve California-specific procedures, work with counsel to coordinate your dispositive provisions, trustee selection, and any required notices or registrations with the California Attorney General’s office when applicable (see AG Charities).

Choosing and verifying charitable beneficiaries

To qualify for federal charitable deductions, your beneficiaries must be eligible charities. In California, most charitable organizations that solicit or hold charitable assets in the state must register with the Attorney General’s Registry of Charitable Trusts. Before finalizing your plan, verify each charity’s legal name, tax-exempt status, and current good standing (you can start at oag.ca.gov/charities). Include contingency language in case a charity has merged, dissolved, or lost status at the time of funding.

Tax benefits at a glance

• Potential partial estate or gift tax charitable deduction (depending on the structure).
• Possible income tax deduction in certain cases (for example, some CRTs and grantor CLTs), subject to IRS rules.
• Deferral and smoothing of capital gains recognition within CRTs via the trust’s tiered distribution rules.
• Opportunity to leverage transfer tax planning with CLTs, especially when funding during low interest rate environments.

The availability and size of deductions depend on IRS rules, actuarial calculations, payout terms, and interest rates at the time of funding. California conforms to many federal tax rules but has its own income tax treatment, so state-level results can differ.

Funding strategies and asset selection

Appreciated securities, closely held business interests, and real estate can be strong candidates, subject to due diligence, valuation, and liquidity planning. For CRTs, contributing low-basis assets can help diversify without immediate capital gain inside the trust. For CLTs, selecting assets likely to appreciate during the lead term can enhance what ultimately passes to family.

Consider liquidity for annuity payments, potential unrelated business taxable income (UBTI) exposure, and the feasibility of managing non-marketable assets. UBTI and certain debt-financed income can affect tax outcomes and administration even for otherwise tax-exempt CRTs.

Payout designs: annuity vs. unitrust

Annuity payouts are a fixed dollar amount each year, offering predictability but no automatic inflation hedge. Unitrust payouts are a fixed percentage of annually revalued assets, aligning payments with market performance. The choice affects deduction calculations, risk, and administrative complexity. Your estate planning attorney can model how different payout rates and terms influence both tax deductions and the amounts expected to reach beneficiaries and charity, consistent with IRS requirements.

California compliance and administration

Charitable trusts with activity in California may have registration and annual reporting obligations with the Attorney General’s Registry of Charitable Trusts (see AG Charities). Trustees must keep accurate books and records, make required notices, and follow fiduciary investment standards under the California Probate Code and California’s version of the Uniform Prudent Investor Act. If real property is involved, additional filings and valuations may be needed during trust administration.

Coordinating with your overall estate plan

Charitable trusts should be integrated with beneficiary designations, retirement accounts, life insurance, and any business succession plan. Retirement assets can be particularly tax-efficient when directed to charity, while other assets may be better suited for heirs. Your documents should clarify who bears taxes, how administration expenses are allocated, and how to handle apportionment among charitable and noncharitable gifts.

Practical steps to get started

• Identify your charitable priorities and the family members you want to benefit.
• List the assets you might contribute and their cost basis.
• Discuss CRT vs. CLT tradeoffs with counsel and your tax advisor.
• Confirm each charity’s legal name, tax-exempt status, and California registration.
• Decide on payout type, target rate, term or measuring lives, trustee, and successor trustees.
• Update your will or revocable trust to include the charitable trust provisions and coordinate beneficiary designations.
• Plan for administration: appraisals, registrations, and annual reporting.

FAQ

Can a charitable trust be created through my will?

Yes. Your will or revocable trust can direct funding of a CRT or CLT at death with specified payout terms, beneficiaries, and trustee provisions.

Do California charitable trusts have to register with the Attorney General?

Many do. Depending on activity and assets, trustees may need to register and file annual reports with the Registry of Charitable Trusts.

Which assets work best?

For CRTs, low-basis appreciated assets are often ideal. For CLTs, assets with strong appreciation potential during the lead term can be advantageous.

Will my estate get a tax deduction?

Possibly. Deductions depend on the trust type, payout design, interest rates, and actuarial calculations under IRS rules.

Ready to explore a charitable trust in your California estate plan? Contact our team to get started.

References

• California Department of Justice, Office of the Attorney General — Charities: https://oag.ca.gov/charities
• Internal Revenue Service — Charitable Remainder Trusts: https://www.irs.gov/charities-non-profits/charitable-remainder-trusts
• Internal Revenue Service — Charitable Lead Trusts: https://www.irs.gov/charities-non-profits/charitable-lead-trusts

Last reviewed: 2025-08-19

Disclaimer (California)

This blog provides general information about California and U.S. federal law as of the date noted and is not legal or tax advice. Reading it does not create an attorney-client relationship. Laws and tax rules change, and outcomes depend on your facts. Consult a California-licensed attorney and a qualified tax advisor for guidance specific to you. Attorney advertising; prior results do not guarantee a similar outcome.