Charitable donations using trusts
Charitable donations can be a great way to make a difference in the world, and using a Trust is one of the most effective ways to do so. A trust is an arrangement where assets are held by one party for the benefit of another. Donors can give money to charity while protecting their assets from taxes and other liabilities by setting up a trust. Trusts can be set up in various forms, such as charitable remainder or lead trusts. Charitable remainder trusts let people give money to charity over a long period, with some of the money going directly to the charity and some going back to the donor at set times.
What is a charitable trust / Charitable Remainder Trust?
A charitable trust is an essential vehicle for making donations to worthwhile causes. It is a legal entity that takes care of the money and property that people, businesses, and other groups donate. Charitable trusts are set up as either private or public trusts and include various donation types, including cash, stocks, real estate investments, artwork, jewelry, and many more items.
The money and assets are managed by trustees, who ensure that the donations are used how the donor wants to help charities or other non-profit organizations. The main benefit of setting up a trust is that it lets donors keep control of their donations without having to be directly involved in how the money is spent or where it goes. Additionally, many charitable trusts offer tax advantages like deductions on income taxes or exemption from capital gains taxes when donating certain items, such as securities or real estate property.
Types of Charitable Trusts
Charitable donations are essential to helping to support those in need and making a difference in the world. But what if you want to make sure your donation makes the most impact? One option is to consider setting up a charitable trust. Charitable trusts come in many forms, each with its purpose and goals.
A common type of trust operates yearly and allows donors to set money aside for specific groups or causes. This setup allows donors to give regularly and track the progress their donations are making over time. Additionally, some charitable trusts allow donors to set aside funds for long-term investments that will grow over years or decades and be used later on for a particular cause or organization.
Charitable Lead Trust VS Charitable Remainder Trust
There are two common ways to give money to charity: through a Charitable Lead Trust (CLT) or a Charitable Remainder Trust (CRT). A CLT is an irrevocable trust in which the donor sets aside funds to be distributed to a charity or charities for years. At the end of the term, any remaining assets are returned to the donor or their heirs. A CRT, on the other hand, is a type of irrevocable trust in which donors give assets to be given away either during the donor’s lifetime or after their death. The remaining funds from this trust can then be passed on to designated beneficiaries such as family members.
The primary difference between these two types of trusts is how and when distributions are made by each one.
The Advantages of a Charitable Trust
Charitable donations can be a great way to help out those in need and give back to the community. But did you know that setting up a charitable trust can provide even more advantages? A charitable trust is a legal entity that allows donors to give money, property, or other assets to benefit one or more charities. Here are some of the main advantages of setting up a charitable trust:
First, it offers tax benefits, allowing donors to claim deductions on their taxes. Donors can also receive an immediate income tax deduction when donating cash or securities to the trust. Second, by setting up the trust, donors can ensure that their money will be used for charitable purposes only and have control over how those funds are spent. Additionally, donors may receive estate tax savings if they set up trusts during their lifetime and specify who should receive distributions after death.
Disadvantages of Establishing a Charitable Trust
Charitable donations are essential to giving back to the community, but some drawbacks are associated with establishing a charitable trust. A charitable trust is an excellent way to give money or property to help society and avoid paying taxes simultaneously. However, establishing a charitable trust has drawbacks because of its complexity and additional legal obligations.
First, setting up a charitable trust can take time and work. You often have to fill out a lot of complicated paperwork to ensure that all the rules are followed. Also, once the trust is set up, ongoing administrative tasks may need to be done to keep the trust legal. This added bureaucratic work can make managing such trusts difficult and time-consuming.
How to Form a Charitable Trust
Charitable trust donations are a great way to make an impactful donation. Even though building trust can seem complicated, it’s not hard at all if you break it down into steps. A charitable trust is a legal document allowing the donor to give money, land, or other assets to a non-profit organization while still retaining some control over its use.
The first step in creating a charitable trust is selecting the non-profit you wish to donate to and determining what type of donation you plan on making. After you’ve decided on the details of your gift, talk to a lawyer or financial advisor for advice. The next step is drafting your trust agreement with clauses for who will be responsible for administering it, how funds should be used and when those funds should be distributed, among other information pertinent to your situation.
Source: Charitable Giving in Trusts https://www.legalzoom.com/articles/charitable-giving-in-trusts
The text above is for general informational purposes and should not be considered legal advice.
Mark Fishbein, Tucson Estate Planner with ALTA Tucson, specializes in Estate Planning, living trusts, and family legacy planning. Visit our website to seek professional help, and Follow us on Facebook.