What is a Charitable Trust?

At its most basic, a charitable trust is a set of assets signed over by a donor to create and maintain a charitable interest. Once established, assets are managed by the trust administrator with generated assets being utilized to support an organization’s philanthropic mission.

Understanding the Types of Charitable Trusts

The specific type of charitable trust ultimately dictates the short- and long-term structure. For charitable remainder trusts, assets are directed to the identified charity at the end or of the trust period, generally at the end of life. Growth of the trust during the trust period is directed to a specific purpose and can include the financial support of the donor or another purpose. In the case of the Bill and Melinda Gates Foundation Trust, for example, the expiration extends to 50 years after their deaths.

Remainder trusts can come with short or longer periods of time depending on the desires of the donor and the charity. However, once the period runs out, all assets and associated interest become property of the charity.

While the other form of charitable trusts -- lead trusts -- are very similar, there is one glaring difference: the donor retains control of the assets given to the charity or organization. Similarly, interest may be considered property of the donor -- in some cases, it goes to the charity while, in others, it’s split between the donor and the charity.

At the end of the established period, the assets and interest are taken from the charity and given to a designated party chosen by the donor. This is, often, a beneficiary, heir or relative, but may be the supported charity also.

The Benefits of Charitable Trusts

There are countless benefits to establishing a charitable trust. For starters, there’s the emotional benefit of doing so much good. Donors are using their assets to help their community at large -- that alone is powerful and overwhelmingly positive.

Beyond that, though, there are the tangible and ongoing benefits that come from starting a charitable trust. Assets given to the trust are tax deductible, which can greatly reduce a donor’s tax burden. Moreover, in the case of lead trusts, when the trust expires and assets pass back to the donor’s heirs or other designated parties, the mandatory estate and gift taxes are much lower than they would be through traditional inheritance channels.

For many, the latter is one of the unique benefits of establishing a charitable trust. Very few estate planning methods enable a donor to take decisive philanthropic action while, at the same time, safeguarding their wealth for future generations. What’s more, by pairing a donor-advised fund with a split-interest trust, families can gain critical benefits of both an income stream and charitable giving.

For more information contact the WiseHeart Foundation at 901.410.3608 or at info@wiseheartfoundation.org.