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New York Rules to the Private Foundation as “Trust”

In New York, the admirable and highly instrumental private foundation is well-recognized means to venerable ends. Indeed, in 2017, the U.S. federal Internal Revenue Service (“IRS”) reported that New York’s private foundations donated $10,716,118,775 in funds to nonprofit charities, the highest in the nation. Rules to private foundations, otherwise known as tax-exempt “trust” within federal and New York statute, guide the formation and administration of those entities during the life of a benefactor and in to the future after they are gone.  

 

Definition

Defined as a form of “trust” in subparagraph (a)(1) of Section 8-1-4 of New York Consolidated Laws, Estates, Powers and Trusts Law – EPT § 8-1.8, “Private foundations: administration of certain trusts as defined in the United States Internal Revenue Code of 1954,” and more specifically in section 509 of the United States Internal Revenue Code of 1986, the private foundation is a tax-exempt entity formed to avoid liability of tax imposition on undistributed income.

 

Governance

With respect to assets transferred in trust, a trustee must abide by the mandatory direction of a private foundation’ s governing instrument. Exception to rules of transfer exist where conflict of interest with established direction is eliminated from governing principles as impracticable, or by any other manner considered under New York law. In the absence of a governing instrument or specific provision guiding the principal investment or reinvestment of the fund, or insufficient evidence of an instrument or provision enforcing conflict of interest, no “such a conflicting mandatory direction” will be allowed to persist.

Tax Exemption  

Private foundations are responsible for control of any transaction that would be considered an “act of self-dealing” resulting in taxation under section 4941 of IRC code. The IRS also prohibits taxable expenditures creating tax liability for a trust in adherence with IRC section 4945.New York law follows IRC section 4943 restrictions regarding excess business holdings and taxation, however trusts formed in the state are exempt from IRC section 4943 pursuant to section 4947(b)(3)(A) or (B) of the code.

Public Disclosure

According to New York law, all private foundation trusts must publicly disclose their financials in an annual return available during regular business hours to any citizen who requests a copy. A copy or notice including the address, phone number and principal contact must be published in a newspaper to adhere to New York rules to public disclosure. Public disclosures made in counties located in a municipality with a population of one million or more, shall be conducted as a notice of judicial proceedings.

New York Estate Law Attorney

Ettinger Law Firm is a licensed New York attorney practice offering estate planning, trust formation, and probate litigation services. Contact Ettinger Law Firm for a consultation about private foundation formation or other trust related matter.  

 

See Related Blog Posts

Charitable Giving and Estate Planning

Establishing a Charitable Trust as Part of Your Estate Plan

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