If you want your estate plan to include some of your favorite charities, there are generally two types of charitable trusts to consider. Each type of charitable trust has unique characteristics and, depending on which one you choose, you may even see some immediate tax savings.
Most Charitable Trusts Are Irrevocable
The first thing you should understand about charitable trusts that take effect during your life is that the transfer of your property usually must be irrevocable in order to see any immediate tax savings. This means that once you create and fund the charitable trust, you can no longer make changes to the trust or take the property back. If you're uncomfortable with the permanence of an irrevocable charitable trust, you can always make it revocable until your death.
A Charitable Remainder Trust Can Pay You Income for Life
Charitable remainder trusts can be a good option if you want to set aside property for your charities but keep the income that the property generates. For example, suppose you own stock that pays quarterly dividends. You can transfer the stock to the trust with one or more charities as the beneficiary, but provide in the trust document that you're to receive all dividend payments for the rest of your life. In this case, you'll receive every dividend payment, but the charities will receive all of the stock at your death.
Charitable Lead Trusts Allow You to Keep Your Property
A charitable lead trust is similar to the charitable remainder trust, but you donate the income and keep the property instead. To illustrate, suppose you fund the trust with a $100,000 savings account and set it up so that the charity receives all of the interest for the next 10 years. At the end of the 10 years, the $100,000 passes to any beneficiary you choose, such as a different charity, family members, or yourself.
Your Charitable Trust May Save You Income and Estate Tax
Both types of charitable trusts can help you reduce or avoid estate taxes since donating money and property ultimately reduces the value of your estate. The assets you transfer to a charitable trust may also provide you with a charitable contribution deduction on your income tax return.
A Trusts and Estates Lawyer Can Help
The law surrounding charitable trusts is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a trusts and estates lawyer.