Charitable trusts are a popular option for people who want to ensure that a portion of their estate goes to support a meaningful cause. The decision to set up a charitable trust (become a grantor) is one that should be carefully examined with the assistance of an attorney. Once the assets have been transferred into the trust, they are considered a gift and cannot be taken back. The charity becomes the trustee and makes all decisions regarding how to invest the assets. The chosen organization must have exempt status under the IRS definition for tax benefits to be realized.

One way to use charitable trusts is to transfer a stock portfolio into a trust as a gift. The trust can sell these stocks without paying any capital gains taxes. Then, the money can be reinvested and income from the trust can be paid to the grantor during his/her life. The IRS requires at least 5% of the trust value to be paid out to the grantor each year. The grantor can choose a higher amount, but a reasonable portion of the assets need to remain in the trust. Otherwise, the charity may not agree to act as a trustee. Although the initial gift of assets to the trust can be taken off the grantor's taxes, this deduction is reduced by the amount of income that will be received.