A charitable trust is a type of irrevocable trust that allows you to make a significant contribution to society while gaining tax benefits for you and your family. Charitable trusts come in two forms: charitable lead trusts and charitable remainder trusts.
Charitable Lead Trusts
Under a charitable lead trust, a donor establishes an irrevocable trust for a specified term of years, and funds the trust. The trust assets are managed and invested by a trustee, with the trust income being paid to a charity specified by the donor. At the end of the specified term of years, the trust assets either go back to the donor, or, as is more commonly the case, the assets are distributed to beneficiaries designated by the donor (for instance, the donor’s children or grandchildren).
Charitable Remainder Trusts
The charitable remainder trust is the more common form of charitable trust. Under this arrangement, a donor establishes an irrevocable trust and funds it. However, instead of a charity receiving the trust income, the donor (or a beneficiary designated by the donor) receives the income. Then, when the owner passes away, or after a specified period of time, the trust terminates and the trust assets are transferred to the charity.
In addition to allowing you to support your preferred causes, charitable trusts offer income and estate tax benefits. Your estate planning attorney can help you determine how a charitable trust might fit into your overall estate plan.