Charitable trusts are designed specifically to support charitable activities. Unlike personal or family trusts, established to benefit individual beneficiaries, charitable trusts aim to contribute to the public good, supporting causes ranging from education and health to the arts and environmental protection.
To qualify as a charitable trust, a trust must be established for purposes that benefit the public. These purposes might include alleviating poverty, advancing education or religion, promoting health or any other purpose the law regards as charitable.
Charitable lead trusts (CLTs)
A charitable lead trust supports a charity for a specific time frame. Under this arrangement, the trust makes annual distributions to the designated charity or charities for the term specified in the trust agreement. This term can be a certain number of years, an individual’s lifetime or a combination of those two. At the end of the trust term, the remaining assets go to the donor or the donor’s heirs.
Charitable remainder trusts (CRTs)
A charitable remainder trust works in the opposite manner. In a CRT, the donor or another designated non-charitable beneficiary receives a stream of income from the trust for a period specified in the trust agreement. Upon the termination of the trust term, the remaining assets are donated to one or more charitable organizations chosen by the donor.
Charitable trusts are one potentially component of a comprehensive estate plan. Understanding how they work with other components is critical, so people who are just getting started with their estate plan or adding charitable giving should seek assistance from someone who can assist them with getting their entire estate plan set in ways that meet their unique needs and preferences.