Charitable trusts are an option for people who want to include their favorite charity or charities in their estate plan. While giving to those causes is the purpose of these, there are a couple of ways this can happen.
Unlike private trusts, which are established to benefit specific individuals or entities, charitable trusts aim to support a broad charitable mission, benefiting the public or a significant segment of it. Understanding a few points about these trusts may help people as they craft an estate plan.
Types of charitable trusts
Charitable lead trusts (CLTs) are designed to provide a stream of income to one or more charitable organizations for a specified term. After this term ends, the remaining assets in the trust can revert to the donor or pass to designated beneficiaries, such as family members. This type of trust allows donors to support their chosen charities over a period of time while ultimately retaining or directing the principal to other beneficiaries.
Charitable remainder trusts (CRTs) work in the opposite manner. In a CRT, the donor or other designated beneficiaries receive income from the trust for a period, typically for the beneficiaries’ lifetimes or a fixed term of up to 20 years. At the end of the term, the remaining assets in the trust are transferred to one or more charitable organizations. CRTs are particularly appealing to donors who wish to receive income during their lifetimes while committing to a charitable gift in the future.
These trusts are only one part of a comprehensive estate plan. Getting everything set is critical so creators can relay their wishes in a legal manner.
