What is a charitable trust?

On Behalf of | Sep 16, 2018 | Estate Planning |

If you have never heard of a charitable trust, you may find that establishing one or more of them is the best way you can give back to your church, your alma mater, your favorite California charity, or any number of other organizations to which you regularly donate money. But the bonus, as Fidelity.com explains, is that while you give to these organizations dear to your heart through these trusts, the trusts also give back to you. 

The great advantage of a charitable trust is that it gives you the opportunity to split your trust’s assets and the income they produce between your favorite charity and yourself and/or another noncharitable beneficiary. In addition, you also can designate yourself as the trust’s trustee.

Personal benefits

Charitable trusts have two basic forms: charitable remainder trusts and charitable lead trusts. Whichever type you choose to establish, you receive the following benefits:

  • Your choice of what assets to place in the trust
  • Your continuing control over those assets
  • Your choice of how to distribute those assets and the income they produce
  • Possible substantial tax benefits
  • Satisfaction of your desire to “give back” according to your own goals and objectives
  • Your choice of how long the trust lasts

With regard to this last point, many people choose a designated period of years, such as 20. Others choose instead to keep the trust in existence until their death or the death of the last remaining noncharitable beneficiary.

Charitable remainder and charitable lead trust difference

In a charitable remainder trust, you and your other designated noncharitable beneficiaries receive each year the income produced by the trust assets. Your charitable beneficiary receives the assets themselves at the end of the trust period.

A charitable lead trust operates in the exact opposite fashion. Each year, your charitable beneficiary receives the trust income, and you and your other noncharitable beneficiaries receive the trust assets at the end of the trust period.

While this is educational information and not legal advice, it can help you understand the benefits of charitable trusts and how they work.


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