Having been fortunate enough to accumulate enough wealth to provide for yourself and for your family, you may want to start thinking of sharing it beyond that circle. Helping out, contributing to charities, and thus giving back to the community… Those are all some rather noble goals that might have popped up in your mind already. Planning to leave some kind of a trail after you leave this Earth, a legacy of sorts, and wanting to try to make the world a better place (at least a little bit), you’ll definitely consider setting up a charitable trust, defined on this page.
Now, while the name gives you some idea on what this is, setting it up without actually getting the clear picture on how it works and why you might need one isn’t exactly the right move. And, naturally, you are not keen on making such a move. What you want to do instead is learn specifically what a charitable trust is and why you may want to set it up in the first place. Once you get acquainted with the specifics of this trust, you’ll have a much better idea on whether you want one for yourself or not.
What Is Charitable Trust?
So, how about we start letting you know the specifics? Jumping right towards explaining why you may want to set it up, i.e. explaining the benefits of doing so, is not the best move. Not knowing what this concept actually entails can make you confused and failing to understand the actual benefits, meaning that you first need to get your facts straight on the actual concept, before proceeding to learning about why this is something you should consider doing.
Basically, a charitable trust is the concept of the donor giving ownership to a charity or creating a charitable foundation so as to manage and distribute assets, including cash, securities and more. These are also referred to as split interest trusts and there is a clear reason for that. Basically, it’s because the beneficial interest is split between a charitable beneficiary and one or more individual beneficiaries.
Read more on how one of these types works: https://www.investopedia.com/terms/c/charitableremaindertrust.asp
Now, two types of charitable trusts exist. First off, there’s the remainder trust and then there’s the lead trust. The first one is irrevocable and funded with cash or securities, providing the donor and the other beneficiaries with a stream of income, while the remaining assets will revert to the charity either upon your death or after the expiration. The fact that’s irrevocable means that it cannot be changed after having been set up.
The charitable lead trust is also an irrevocable one, but it functions a bit differently that the first one we’ve explained above. It is established to distribute an income stream to a charity or a non-profit organization of your choice for a certain number of years, and it can be established as a gift of securities or cash actually made to the trust. So, instead of the charity having control over the properties, the donor is the one that keeps control. When interest is earner, for example, the proceeds can go to the charity alone, or they can be split between the charity and the donor’s beneficiaries, and when it expires, the ownership of the donation goes wherever the donor actually stipulated it.
Why Set It Up?
If wondering why you would even think about setting up a charitable trust at all, the main thing to understand is that these offer significant tax benefits, while at the same time giving you the opportunity to support a certain organization and a cause that you care about. Reducing income tax and estate tax as part of your estate planning can be achieved through setting up one of these. Furthermore, they also help you avoid gift taxes, which also makes them a rather smart tax strategy.
While there are, clearly, quite some benefits in doing this, when engaging in charitable trust planning you should definitely speak to your estate planning attorney if you have one. These professionals know the ins and outs of how all of this works, meaning they will give you sound advice on what to do and how to set everything up. Trying to do something without actually understanding how it works could lead to financial mistakes, and you certainly don’t want that.
How to Set It Up?
Speaking of setting it up, if you don’t know how to do that, here are some key aspects to think about. First, you’ll need to determine which assets you would like to put into the trust, and then you’ll have to select the beneficiaries, as well as the charitable organization. Of course, since this is such a complex process that requires a great deal of planning, the best thing to do is hire an estate planning attorney and let them guide you through everything.