There are multiple types of trusts that can be created during the estate planning process. When you create a trust, you transfer certain assets into the control of the trust, and these assets will be managed by a trustee and distributed to different beneficiaries according to your instructions. A charitable trust is a type of trust that is created for the purpose of making donations to charitable organizations. Charitable trusts fall into two general categories: charitable lead trusts and charitable remainder trusts. Each type of trust has different benefits and drawbacks, so it is important to consult with an estate planning attorney to determine which type of trust is right for you.
A charitable lead trust (CLT) is a trust in which the trustee makes payments to a charity for a specified period of time. After this period ends, the trustee will transfer the remaining assets to other named beneficiaries. CLTs can be either grantor trusts or non-grantor trusts. Grantor CLTs are taxed as part of the grantor’s estate, while non-grantor CLTs are taxed as separate entities. CLTs can be an effective way to minimize estate taxes and transfer wealth to beneficiaries in a tax-advantaged manner.
Benefits of CLTs include an immediate income tax deduction for the present value of the payments made to charities and the ability to transfer wealth to future generations while still providing support to charities during the donor’s lifetime. However, these trusts may also have some drawbacks. Since they are typically irrevocable trusts, the donor cannot change their mind about the terms of the trust once it has been created, and the donor will not be able to access the assets held in the trust.
A charitable remainder trust (CRT) is a trust in which the trustee makes payments to named beneficiaries for a specified period of time. After the specified period ends, the trustee transfers the remaining assets to a charity. Like CLTs, CRTs can be either grantor trusts or non-grantor trusts. CRTs can be an effective way to minimize income taxes and transfer wealth to beneficiaries in a tax-advantaged manner.
Benefits of CRTs include tax deductions for the value of charitable donations, the ability to sell appreciated assets without incurring capital gains tax liability, and an income stream that may last for the rest of the grantor’s life or for a fixed number of years. As with CLTs, irrevocable CRTs cannot be changed after they are created, and the donor will not have access to the assets in the trust.
Creating a charitable trust is one way you can philanthropically support causes you care about while also providing financial benefits for yourself and your loved ones. When deciding if setting up a charitable trust makes sense for you, it is important to work with a qualified attorney who can help you understand all of your options and choose the best course forward given your unique circumstances. At The Marques Eason Law Group, our South Side of Chicago trusts lawyer can work with you to make sure charitable giving is incorporated into your estate plan while also addressing any other concerns during the estate planning process. Call us at 312-973-3755 to set up a consultation and learn more about our services.