A charitable trust is a trust where one or more charities act as the beneficiaries. The assets are held and managed by the charity for a specified period of time, with some or all interest produced returning to the charity. This distribution can be a permanently specified amount each year, or an amount calculated annually based on a percentage of the trust's value in the given year.

Remainder Trust

Under a remainder trust, the grantor sets aside assets which then pay income to non-charitable beneficiaries every year, usually the grantor or a family member. This can be for any period of time - either a few years, or well after the donor's death. When the trust expires, the remaining value of the trust passes to the charity as a charitable estate tax deduction, as well as any interest or profits that might have been generated.

Lead Trust

Charitable lead trusts function by paying income to a charity on an annual basis. Rather than giving control of a set of properties over to a charity, the donor retains control. The grantor of the trust sets aside assets which then pay income to the charitable beneficiaries every year. Upon the expiration of the trust, rather than the charity gaining control of the donation, it reverts back to a party of the donor’s choosing, usually their heirs or beneficiaries. The grantor is able to receive a charitable income tax deduction every year that the trust is operational.

Charitable trusts are a win-win for both charities and donors. The charities receive the crucial funding they need to continue operating, while the donors can access otherwise unavailable tax breaks.

Benefits

• Capital Gains Tax Break. The grantor can place highly appreciated assets (stock, real estate, art, etc.) into a charitable trust, and receive income on them without paying a capital gains tax. When the grantor begins to receive income from the trust, there will be small capital gains taxes assessed occurring over the length of the trust, rather than in one lump sum.
• Income Tax Break. Under charitable lead trusts, donors can get an immediate federal income tax deduction based on the trust’s value and only pay income tax on the revenue the property produces. Once the trust expires and passes to the donor’s heirs, estate and gift taxes are substantially reduced.
• Retirement. The charitable trust can be used to provide income for retirement. It can be set-up so that the income from the trust can be kept in the trust until the grantor retires, allowing the trust property to grow steadily over time and then pay an income to the grantor during retirement.

Like many estate-planning devices, a charitable trust is best utilized as part of a comprehensive estate plan.  If you would like to take advantage of the benefits of a charitable trust, contact Hull & Chandler, P.A. here or at 704-375-8488 to set up a meeting with one of our knowledgeable estate-planning attorneys to see if such a trust would be beneficial to your overall estate plan.