Proposed Pennsylvania Law Could Hurt Charitable Trusts

Posted by on October 25, 2002

[Philanthropy News Digest]

A proposed Pennsylvania law designed to make it more difficult for the Hershey Trust Company ( ) to sell its controlling stake in Hershey Foods Corp. ( ) may conflict with federal tax law and could curb the creation of new charitable trusts in the state, the Philadelphia Inquirer reports.

The legislation, which passed the Pennsylvania Senate and will be voted on in the House early this week, was created in response to strong community opposition that developed after the Hershey Trust announced its intention to sell its stake in Hershey, Pennsylvania-based Hershey Foods Corp, the nation’s largest chocolate maker. The new law would require charitable trusts to consider the economic impact of decisions that affect a "principal business enterprise" in the communities where their beneficiaries are located.

While the charitable trust legislation is aimed at the Hershey Trust, a public charity, it could also apply to private foundations in the state. Both private foundations and public charities can be incorporated as charitable trusts, although they don’t have to be. Federal tax law prohibits private foundations from holding more than 20 percent of the voting interest in a company, but there is no such restriction for public charities. The proposed Pennsylvania legislation could be in direct conflict with federal law, said Donald W. Kramer, a lawyer who specializes in nonprofit organizations at Montgomery, McCracken, Walker & Rhoads L.L.P., and would "inhibit private foundations from divesting themselves of control as they are required to do."

Horn, Patricia. "Being Charitable May Get Tougher." Philadelphia Inquirer 10/18/02.

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