IBA Compliance Connection

Your go to source for compliance!

We have opened a benefit account for a customer for the purpose of raising funds for a high school student’s medical procedure. The customer has applied for and received a tax ID for the account, and we have classified it as an account for an unincorporated association. However, they have raised more than $25,000 since the account was opened. Is the account now subject to the Illinois Charitable Trust Act, and, if so, what responsibility or reporting requirements does our bank have? We are not sure whether this account has been registered with the State Attorney General.

—

by

admin

The Charitable Trust Act may apply if the beneficiary is still a minor. While this law does not impose any additional responsibilities or reporting requirements on your bank, we believe that you should inform the accountholder of their potential requirements under the Act and request a copy of their registration as a charitable trust, if applicable.  

The Charitable Trust Act generally applies to accountholders who have received more than $4,000 for charitable purposes. However, “charitable purpose” is defined as “any funds which are to be applied for the benefit of an indefinite number of people. . . .” In this case, the single beneficiary is definite, so the funds collected would not be used for a “charitable purpose.” Consequently, it appears that the Charitable Trust Act would not apply, although the amount collected now exceeds $4,000.

However, Section 7.5 of the Charitable Trust Act states that the Act also applies to a charitable trust established for the benefit of a minor (in Illinois, a person under the age of eighteen). A charitable trust for the benefit of a minor includes a trust that receives funds solicited from the public under representations that they will pay the medical expenses of the minor. Such trusts are subject to the Charitable Trust Act’s registration and reporting requirements and are subject to additional reporting requirements if the person or trustee responsible for the trust is not the minor’s parent or guardian.

Due to Section 7.5 of the Act, we recommend informing your customer of their obligation to register as a charitable trust if the beneficiary is under the age of eighteen and collecting a copy of the registration. But as stated above, the Act does not impose any additional responsibilities or reporting requirements on your bank.

For resources related to our guidance, please see:

  • Charitable Trust Act, 760 ILCS 55/6(a) (“Every trustee subject to this Act who has received property for charitable purposes shall file and register with the Attorney General, within 6 months after any part of the income or principal is received for application to the charitable purpose”)
  • Charitable Trust Act, 760 ILCS 55/2 (“This Act applies to any and all trustees, as defined in Section 3, holding property of a value in excess of $4,000.”)
  • Charitable Trust Act, 760 ILCS 55/3 (“‘Trustee’ means any person, individual, group of individuals, association, corporation, not-for-profit corporation, estate representative, or other legal entity holding property for or solicited for any charitable purpose. . . .”)
  • Attorney General Charitable Trust Rules, 14 Ill. Adm. Code 480.20(c) ( “‘Charitable purposes’ includes without limitation any funds which are to be applied for the benefit of an indefinite number of people to provide them with: (1) Education, (2) The benefit of religion, (3) Relief from poverty, sickness or disease, (4) A means of establishing themselves in life, (5) Public building or recreational activities, or (6) Services which lessen the burden of government.”)
  • Charitable Trust Act, 760 ILCS 55/7.5 (“(a) In the case of a charitable trust established for the benefit of a minor or person with a disability, the person or trustee responsible for the trust, if not the guardian or parent, shall report its existence by certified or registered United States mail to the parent or guardian of the minor or person with a disability within 30 days after formation of the trust and every 6 months thereafter. The written report shall include the name and address of the trustee or trustees responsible for the trust, the name and address of the financial institution at which funds for the trust are held, the amount of funds raised for the trust, and an itemized list of expenses for administration of the trust.

    The guardian of the estate of the minor or person with a disability shall report the existence of the trust as part of the ward’s estate to the court that appointed the guardian as part of its responsibility to manage the ward’s estate as established under Section 11-13 of the Probate Act of 1975. Compliance with this Section in no way affects other requirements for trustee registration and reporting under this Act or any accountings or authorizations required by the court handling the ward’s estate.

    (b) If a person or trustee fails to report the existence of the trust to the minor’s parent or guardian or to the parent or guardian of the person with a disability as required in this Section, the person or trustee is subject to injunction, to removal, to account, and to other appropriate relief before a court of competent jurisdiction exercising chancery jurisdiction.

    (c) For the purpose of this Section, a charitable trust for the benefit of a minor or person with a disability is a trust, including a special needs trust, that receives funds solicited from the public under representations that such will (i) benefit a needy minor or person with a disability, (ii) pay the medical or living expenses of the minor or person with a disability, or (iii) be used to assist in family expenses of the minor or person with a disability.

    (d) Each and every trustee of a charitable trust for the benefit of a minor or person with a disability must register under this Act and in addition must file an annual report as required by Section 7 of this Act.”)