One of the primary reasons a person creates an estate plan is to support the people or causes that are important to him or her. He or she may want to consider creating a charitable trust to accomplish this.
Within the terms of the charitable trust, the trust creator can decide how the trustee will manage and invest its assets for the charity’s benefit. This also includes directions for how the trustee will make donations. One of the benefits of a charitable trust is that distributions can be made during the trust creator’s lifetime as well as after his or her death.
The trust is completely separate from the individual who created it, meaning that the trust holds the assets, pays taxes and must be managed as a legal entity.
Remainder and lead trusts
Some people choose to create a charitable remainder trust. This type of trust makes distributions to the trust creator and his or her beneficiaries first, then if there are any remaining assets those are distributed to the charity. It can also distribute investment proceeds to beneficiaries and then the principal to a charity after a period of time.
A lead trust is the opposite of a remainder trust. The assets are distributed first to the charity for a period of time, then if there are any remaining assets those are distributed to the named beneficiaries.
Each type of trust is irrevocable, meaning that once assets are added to the trust they cannot be removed. However, the charitable trust may have tax benefits such as deductions for the value of its contributions.
A charitable trust can be a positive, effective way to support an important cause and leave a lasting legacy. If a person has questions about this estate planning option, there is help available.