A charitable trust uses its assets to support one or more philanthropic organizations. The assets within the trust are held and managed by a charity. There are two types of charitable trusts to know about.
Charitable Remainder Trust
With a charitable remainder trust (CRT), an organization receives assets for a specific period of time. This can last anywhere from a few years to beyond the donor’s death. The charity receives all of the assets within the trust as well as any interest or profits that have been generated.
“The CRT is best used when the owner has appreciated property.”
Bob Carlson, Retirement Watch
Because the remainder of the trust goes to the charity, the owner receives a charitable contribution deduction based on the property’s fair market value. The deduction becomes higher the older the donor gets. A CRT also allows the donor to sell assets without incurring a capital gain.
Related: Trusts in Estate Planning: 6 Things You Need To Know
Charitable Lead Trusts
In practice, charitable lead trusts (CLT) are fairly similar to CRTs. Like CRTs, charitable lead trusts are established for a specified period of time (usually 10-20 years) and the charities named within the trust receive interest payments from the principal annually.
With a charitable lead trust, the donor never fully relinquishes control over their assets. They also maintain the right to manage their assets throughout the duration of the trust. At the end of the specified period of time, the assets within the trust no longer go to the charity, but to the beneficiaries of the grantor’s choosing.
Is a Charitable Trust Right For Me?
Charitable trusts are for the financially wise. They are best utilized by wealthy investors who can afford to give back and gamble some money at the same time. They’re great for wanting to support a specific cause.
To get more info on charitable trusts and retirement planning advice, visit Bob Carlson’s Retirement Watch.
