A charitable trust can be a powerful estate planning tool in the right circumstances. Not only can it provide a benefit to a good cause, but it can help reduce the tax burden of an estate, as well as provide current income tax deductions to the creator of the trust.
To understand exactly how a charitable trust works, let’s review how a trust functions. A trust is basically a collection of assets that is managed by someone, called the “trustee,” for the benefit of a person or organization, called the beneficiary, that is specified within trust documents.
All charitable trusts must be created to benefit a charitable purpose. A charitable purpose is a purpose that benefits the public in some way, such as furthering education, scientific research, religion, the environment or the arts. The charitable beneficiary must be recognized by the IRS to acheive the desired tax benefits.
A Charitable Remainder Trust is the more popular form of a charitable trust, in which a beneficiary named by the donor, which can be the donor himself or herself, receives the income interest for life or for a stated number of years, after which the remainder of the assets are donated to a charity.
A less commonly used charitable trust is a Charitable Lead Trust in which the charity receives the income interest for a stated period of time, with the remainder interest going to a beneficiary named by the donor.
Charitable trusts can be formed during lifetime or at death, and they certainly are not for every estate, but they can be powerful estate planning tools in the right circumstances. Talk with a trust attorney or estate planning attorney to establish an estate plan that meets your family’s specific needs.
Michael Robinson, Estate Planning Attorney
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