Charitable Trusts: Choices for Gifting

Posted by Richard on August 1, 2013


The greatest benefit of charitable giving is the knowledge that you’ve helped make a difference in the lives of others. Charitable trusts allow you to take your generosity one step further than simply writing a check.

A charitable trust is a set of assets that a donor signs over or uses to create a charitable foundation. The assets are held and managed by the charity for a specified period of time, with some or all interest that the assets produce going to the charity. Charitable trusts come in two basic types: remainder trusts and lead trusts.

Charitable Remainder Trusts

A charitable remainder trust (CRT) is an irrevocable, tax-exempt trust in which you place assets to provide income for yourself during a specific period of time. You can choose how you want those interest payments, either in a steady stream to count on (annuity trust) or ride the market fluctuations (unitrust). After the period you’ve specified (which could end at your death), the remaining assets will be turned over to the charity of your choice. The trust can be funded with a wide assortment of assets, including bonds, mutual funds, stocks, and real estate.

A CRT offers flexibility, a lifetime income stream for you, and significant tax benefits to you and your heirs. Ultimately it may be even more beneficial for you than a simple bequest.

For instance, if you have an appreciated asset like real estate, and you sell the property yourself, you will likely pay a great deal in capital gains taxes. But if you transfer the property to a charity through a CRT, the trustee may be able to sell the property with no gift, estate, or capital gains taxes for the donor. The trustee can then set up an investment that will provide an income stream for you, which will be subject to ordinary income taxes and capital gains. At the death of the last beneficiary or the end of the trust period, the trust ends. The amount remaining in the trust is distributed to the named charity.

Charitable Lead Trusts

In the case of a charitable lead trust (CLT), the charities receive the interest from your gift for a set period — typically 10 to 20 years. At that time, whatever is left in the trust goes to a noncharitable beneficiary, such as your children or yourself.

Estate planners recommend a CLT for people with substantial wealth to stash assets whose value will undoubtedly appreciate in the future so that the increased value escapes any taxation in the donor’s estate. Overall, this route carries fewer tax advantages than other charitable trusts because you don’t surrender full responsibility.

Setting Up a Trust

If you do decide to set up a trust, note that you’ll have to pay annual administration fees to maintain it. Also note that you can’t dissolve the trust, though you can change its beneficiary. Talk to your legal counsel to determine which option is right for you.


The information in this communication is not intended to be legal or tax advice and should not be treated as such. Each individual’s situation is different. You should contact your legal and/or tax professionals to discuss your personal situation

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