One of the least-discussed topics of estate planning are those dealing with charitable givings. There are various ways to support charitable organizations and purposes in estate planning. While making an outright gift is the simplest option to fulfill a charitable purpose, charitable trusts provide additional features you may find desirable when giving to a charitable cause.
What is a Charitable Trust?
A charitable trust is an irrevocable trust established for charitable purposes. There are basically two types of charitable trusts: charitable remainder trusts and charitable lead trusts.
Charitable Remainder Trusts
A charitable remainder trust (CRT) is a trust that provides for a specified distribution, at least annually, to at least one noncharitable income recipient for a period specified in the trust instrument, with the remainder interest paid to at least one charitable organization or cause. The settlor of the trust identifies the charitable organization that should receive the balance of the trust’s interest in the trust instrument. A CRT would be beneficial for certain settlors who would like to retain a stream of income prior to a final distribution to a charity.
Charitable Lead Trusts
Charitable lead trusts (CLTs) are designed to provide income payments to at least one qualified charitable organization for a period measured by a fixed term of years, the lives of one or more individuals, or a combination of the two; after which, trust assets are paid to either the grantor or to one or more noncharitable beneficiaries named in the trust instrument. Like a CRT, a CLT provides a benefit to charitable organizations, but its distributions the opposite of those made by a CRT. A CLT makes its initial distributions to a charitable organization for a fixed number of years before the remaining trust assets are distributed to non-charitable beneficiaries. In other words, a CLT “leads” with the trust’s charitable distribution, while a CRT gives the “remainder” of the trust and its principal to the charitable organization. In either case, the settlor has flexibility to provide for both charitable interests and non-charitable beneficiaries in estate plans.
Charitable trusts are a helpful option for clients who wish to diversify the beneficiaries of their trusts. These trusts impose certain limitations, however, for the trust must be administered in accordance with strict regulations imposed by the IRS. If you are interested in consulting about a charitable trust give our office a call at (205) 578-1597.