The Purpose of a Charitable Trust

In this article, you can discover:

• How a charitable trust can empower you to make a positive impact beyond your lifetime.
• How a charitable trust can support wonderful community causes while creating income opportunities.
• Addressing loved ones in a charitable trust.

What is the Purpose of a Charitable Trust?

A charitable trust is a unique and valuable arrangement for planning a legacy of philanthropy, and is essential for taking advantage of the potential tax benefits with the Internal Revenue Service (IRS). Donors consult estate planning attorneys to understand what type of charitable trust to create.

The primary focus of charitable trusts is to meet the philanthropic goals of the donor, perhaps while generating income, providing for living expenses, and offering flexibility and control to the donor.

How Can We Plan for Our Lifetime and Our Heirs?

There are two main types of charitable trusts and both can be set up with an estate planning attorney to ensure the well-being of loved ones.

The first main type of charitable trust is a charitable remainder trust, which is an irrevocable trust designed to provide financial support to the donor, and possibly their heirs, with the assets before the set period of time. During the set period of time, the trust provides a stream of income to the donor or heirs. After the set period of time, which could be the donor’s lifetime, the existing trust assets are then distributed to the designated charity or charities.

The second main type of charitable trust is a charitable lead trust, which is an irrevocable trust designed to provide financial support to the heirs, and possibly the donor, after the set period of time. During the set period of time, the trust makes payments to one or more charities. After the set period of time, which could be the donor’s lifetime, the existing trust assets are then distributed to the donor’s heirs or chosen beneficiaries.

Should we Consult with our Financial Advisor in Charitable Trust Planning?

In setting up a charitable trust, an estate planning attorney typically works with the financial advisor. The tax implications are complicated and subject to specific IRS rules. Depending on the type of charitable trust created, the trust may receive a reduction in income tax, gift tax, and estate taxes, or may be exempt from tax. Due to the potentially significant tax advantages that the charitable trust generally offers the donor, these trusts are irrevocable. As they cannot be terminated, they should be considered carefully. The trust acts as a separate entity, generally enduring beyond the lifetime of the donor. A consultation with a financial advisor can offer expertise in planning for loved ones, while considering the legacy of a charitable gift.

Can I address Charitable Gifts in a Revocable Living Trust?

As an alternative to charitable trusts, a donor can address charitable gifts in a revocable living trust (RLT). Sometimes referred to as family trusts, RLTs are created during the donor’s lifetime and may be amended or revoked by the donor. With assistance from an estate planning attorney, the donor can address charitable gifts in the RLT to direct the trustee to distribute specified assets to one or more charities. The value of the assets donated to charity are generally deductible for estate tax purposes, although a financial adviser should also be consulted.

Can I address Charitable Gifts in a Foundation?

As an alternative to a trust, foundations can be used for a donor to create a philanthropic legacy. Foundations, private nonprofitable organization with the purpose of serving charitable causes, are set up similar to a corporation. The advantage is that they may be simpler, and provide more options to the donor with different tax advantages. They are, however, less private, and again, a financial advisor, as well as a business attorney should be consulted. Hudson Martin PC can handle these needs.

What other ways can I address Charitable Gifts?

Besides charitable trusts, charitable distributions in revocable living trusts, and foundations, a donor may choose to make a direct charitable gift to one or more charities. Our law firm can help with each of these options.

For more information on the Components Of A Charitable Trust Plan, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (831) 480-6608 today.

Note: This article is not intended to serve as legal advice but only a resource. For legal advice regarding charitable trusts and your particular matter, please contact Jeannette Witten with Hudson Martin PC.