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What are charitable trusts?

On Behalf of | Sep 27, 2023 | Estate Planning

When people contemplate their own mortality, they often try to find ways to make sure they make a meaningful difference in this world – and money is something that can fund all kinds of charitable organizations and goals.

Charitable trusts are one way to do some good in this world and better define your legacy.

2 types of charitable trusts to consider

There are two primary types of charitable trusts that people use:

  • Charitable remainder trusts (CRTs): A CRT provides income to the donor or other beneficiaries for a specified period, after which the remaining assets are transferred to one or more charitable non-profit organizations. This arrangement allows donors to receive an income stream during their lifetime while still supporting a charitable cause.
  • Charitable lead trusts (CLTs): In contrast to CRTs, CLTs provide income to one or more charitable organizations for a specific period, after which the remaining assets are transferred back to the donor or their designated beneficiaries. This structure enables donors to leave a charitable legacy while preserving assets for their heirs.

The benefits of a charitable trust, no matter the specifics, are many. The creation of the trust lowers the value of your estate for taxation purposes, and it can even help you avoid paying capital gains taxes on assets that are placed into the trust. It also can make the money you provide the nonprofit tax-free, which is an additional boost to your charity.

However, it’s also important to remember that these trusts are usually irrevocable, which means that you can’t change your mind about their purpose if your own goals or beliefs shift in the future. If, for example, you decide that you no longer want to support a specific charity because of its policies, you could find yourself in an unpleasant situation.

Setting up your estate plans can take a lot of hard work, and the decisions aren’t always easy. Legal guidance can help you make choices that fully align with your values.