You can contribute to your favorite charity when building your estate plan. You can designate money or assets for donation in terms of your will, but there are other ways to ensure that charitable contributions reach their intended recipients. People often set up a revocable or irrevocable trust that allows you, the grantor, to designate specific charities and other beneficiaries.
To qualify for a charitable trust, at least one of the beneficiaries must be a non-profit, public charity or private foundation. Depending on how it is structured, the grantor (if still living) or their heirs may qualify as beneficiaries.
There are many benefits
Along with supporting favorite organizations, there are other benefits to creating a charitable trust:
- It creates a family legacy and sets an example for future generations to follow suit
- The trust can generate income for the tax-exempt charity, but it could also do so for grantors and beneficiaries.
- It can avoid capital gains tax.
- It can turn an unprofitable property or asset into cash that may then get reinvested.
There are two common types of charitable trusts
Trusts are as individual as the grantors who create them and the goals they plan for, but there are two common types of charitable trusts:
Charitable lead funds: A charitable lead fund is a trust established for a certain period, during which designated charities receive payments according to the fund schedule. At the end of the defined term of the trust, the remaining funds go to the private beneficiaries you identify. These funds prioritize charitable donations over private payments.
Charitable remainder funds: A charitable remainder fund also allows you to designate individual beneficiaries and charities. Choose as many of each as you wish, but at least one must be an individual. The trust remains valid for a predetermined period. Beneficiaries receive funds throughout that period. Then, the charity you designate for the remainder gets the balance. This fund prioritizes fund distribution with a final settlement option.
Creating a legacy
A trust or charitable fund can give you peace of mind that an estate’s resources are handled as the grantor planned it. It may make the most sense for those who prioritize personal and economic legacies.