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What is a charitable trust?

On Behalf of | Sep 30, 2022 | Estate Planning

The trail you leave behind after you are gone is vital, especially if you care about your legacy. If you are fortunate enough to accumulate wealth, starting a charitable trust can help you share your wealth beyond the people closest to you. 

But what is a charitable trust?

A charitable trust is an organization, body, or foundation that holds, manages, and distributes your assets to charity according to your instructions. This is a smart way to realize your financial and philanthropic goals.

What are the two types of charitable trusts?

There are two main types of charitable trusts, including:

  • Charitable remainder trust: This trust helps you distribute proceeds of your investments or assets to your beneficiaries and give out what remains to charity. 
  • Charitable lead trust: This trust distributes part of your assets to charity before distributing the remaining portion to your named beneficiaries. 


These two forms of charitable trusts do not allow you to take back assets you contribute for charitable purposes. However, you can enjoy tax deductions with a charitable trust if your assets are donated to any charity organization that the IRS recognizes. 

How do charitable trusts work?

Charitable trusts hold and manage assets by distributing them to charity. Once you establish a charitable trust, you have the right to indicate how you want your assets invested, managed, and donated. 

Criteria for creating a charitable trust

Essentially, a charitable trust must meet one of the following criteria to be legally defined as such:

  • Be for the public benefit
  • Be for a charitable purpose
  • Be administered by an independent trustee who doesn’t act for personal gain or profit 

Is a charitable trust a good option for you?

A charitable trust has been an effective tool for realizing financial and philanthropic goals for ages. However, while a charitable trust may be the best vehicle for you, if you want to maintain control of your assets or have questions about establishing a charitable trust, it’s best to seek financial and legal guidance.