Grantors, or persons who wish to establish a trust, typically use charitable trusts when their desire is to make a large charitable gift, or to transfer a large amount of their assets to a charitable organization. Generally, if a person wishes to only make a few smaller gifts to different charities, a charitable trust has no real benefit.
Process, Requirements, and Executing a Charitable Trust
One of the most important things to know about charitable trusts is that they are irrevocable. Therefore, once you execute a charitable trust, it is permanent; you cannot later decide to revoke a charitable trust and take back the trust property for yourself, or give the trust property to another beneficiary, whether it be a person or another charitable organization. The most common type of charitable trust is a charitable remainder trust. Initially, the grantor sets up a trust and transfers a specified amount of assets to the trust that he or she wishes to donate to a particular charitable organization. Keep in mind that only certain charities can be the beneficiary of a charitable trust. The Internal Revenue Service (“IRS”) must approve qualifying charitable organizations, and they must maintain tax-exempt status pursuant to IRS rules and regulations.
During your lifetime, the charity acts as trustee of the assets contained within the trust, or, in other words, is in charge of managing and/or investing the assets. Typically, you specify a time period during which you continue to receive income from the trust property – this time period can last for the remainder of your life, or for a certain number of years. Following your death, then, the trust property becomes the legal property of the charitable organization.
Getting Help with a Charitable Trust
If you intend to make a charitable donation of a relatively large size, whether through a trust or some other sort of estate planning mechanism, be sure to consult an attorney for help in minimizing applicable taxes and legal fees. In order to safeguard your donation, you must allow an attorney to advise you on the best vehicle possible for making the charitable donation that you choose.
