How to Set Up a Legal Defense Trust
The establishment of a legal defense trust allows individuals to contribute to the legal support of a group or individual. The formation of an organized trust will provide donors with the peace-of-mind that their donations will in fact be used to pay the legal bills of those it was intended to help as opposed to being used for other purposes.
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Instructions
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File with the appropriate state authorities as a charitable trust. Depending on your state these filing requirement may vary and, if required, filing may be possible online. For instance, in California, the California Attorney General's office is assigned with the responsibility of governing charitable trusts. This office allows California trusts to file online at the Attorney General's website. (Reference 1) The IRS provides a state-by-state directory of state-level governing entities which is available in the resources section below this story.
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Register the name of the trust with your state's Secretary of State's office. This will help prevent confusion with other entities which may have a similar name.
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Determine the mission of the legal defense trust prior to filing with the Internal Revenue Service (IRS). This is an important step as your trust will fall under various tax structures depending on the mission of the trust. For instance, a legal defense trust fund formed to benefit a segment of the public as a whole may be able to organize under section 501(c)(3) as a tax-exempt group. This organization status will not only exempt the trust from taxes but allow the defense fund to receive tax deductible contributions. However, if the mission of the trust is to benefit a single individual then the fund may need to organize under tax law in a form which will require taxation. (Reference 2)
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File for recognition under the appropriate IRS tax classification.
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Secure an employer identification number (EIN). Do this prior to opening a bank account for the trust. You will need an EIN in order to open a bank account. You can apply for an EIN online through the IRS website. (Reference 3)
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Tips & Warnings
Legal defense trust funds may come under regulation by state law. For instance, a legislative proposal in Kentucky would have made it illegal for public office holders to accept funds into their legal defense trust if the origin of those funds is from a business who has a vendor arrangement with state government. (Reference 4)
