Charitable trusts are a great way to contribute to a charity you are passionate about. With a charitable trust, you have the flexibility to control how you want your contributions donated. You can also give to more than one charity or beneficiary.
There are two types of charitable "split-interest" trusts, including a charitable remainder trust (CRT) and a charitable lead trust (CLT). These trusts are perfect for allowing you to donate to your charity and also providing for a non-charitable beneficiary, such as a family member. Assets are split between the two.
How do CRTs and CLTs work?
In a CLT, the designated charity receives interest income from your assets for either a designated number of years or for someone's lifetime, while the individual beneficiary receives the remainder of the assets when the trust term ends.
A CRT is basically the opposite of a CLT. The individual beneficiary receives interest income from the assets, and the charity (or charities) receive the remainder when the designated term or person's lifetime ends.
What are some of the advantages of using CRTs or CLTs?
You can add highly appreciated items to the trusts that produce regular payouts. Assets might be as stock or real estate. One advantage is the ability to chose the term periods for interest payouts and the remainder payout.
Another advantage for non-income producing property is tax savings. If you sell property from a trust, it is tax exempt. Therefore, you preserve the full fair market value of the asset by not having to pay capital gains tax. Also, potential estate taxes are reduced because assets in a trust are no longer counted in your estate for tax purposes.
What are the disadvantages of using CRTs or CLTs?
Trusts are not supposed to have to go through probate when the owner dies. However, heirs or caretakers of the trust may attempt to access money from the trust illegitimately. Often, heirs do not want to wait for their portion or they disagree with money going to the charity.
Even though charitable donations are the decision of the donor, when conflicts arise or questionable actions are taken, the trust could end up in probate despite the donor's best intentions. Charities then need a trust litigation attorney to help them fight for what was rightfully bequeathed to them.
Source: Infidelity, "Charitable giving that gives back," accessed Jan. 04, 2018