Charitable Trust

Understanding

Charitable Trusts

Leaving a Legacy Through Giving

A Charitable Trust is a unique estate planning tool that allows individuals to make a lasting impact on their favorite causes or organizations while benefiting from potential tax advantages. At SMITH | ASHCRAFT, we help clients set up charitable trusts that align with their philanthropic goals and provide lasting support to charitable organizations.

What is a Charitable Trust?

A charitable trust is a legal arrangement in which a person (the settlor) donates assets to a trust with the purpose of benefiting a charitable organization or cause. The trust is designed to support specific charitable goals during the settlor’s lifetime and beyond, with tax incentives often available to encourage charitable giving.

Key Types of Charitable Trusts

Charitable Remainder Trust (CRT)

• A CRT allows the settlor (or other designated beneficiaries) to receive income from the trust for a specified period (usually for their lifetime or a set number of years).
• After the specified period, the remaining trust assets are distributed to one or more qualified charitable organizations.
• Benefits:
• Provides an income stream to the settlor or beneficiaries.
• Offers potential tax deductions for the settlor based on the charitable portion of the trust.
• Allows the settlor to donate appreciated assets, such as real estate or stocks, without paying capital gains taxes.

Charitable Lead Trust (CLT)

• A CLT operates in the opposite manner of a CRT. In this case, the charity receives income from the trust for a specified period, while the remaining assets are eventually transferred to non-charitable beneficiaries (such as family members).
• Benefits:
• Can reduce estate and gift taxes for beneficiaries.
• Allows for a significant charitable donation during the settlor's lifetime, while benefiting heirs in the future.

Pooled Income Fund (PIF)

• A pooled income fund is similar to a charitable remainder trust, but instead of being managed separately, the contributions from multiple donors are pooled together by a charitable organization.
• The donor receives income from the pool of funds, and after the donor’s death, the remainder of the contribution goes to the charity.
• Benefits:
• Simpler than setting up a private trust.
• Provides an income stream for the donor and supports the charity.

Donor-Advised Funds (DAFs)

• A donor-advised fund is an account where individuals can contribute assets and then advise the fund on how to distribute those assets to charitable organizations over time.
• While not a traditional trust, a DAF offers a charitable giving vehicle with flexibility in how donations are made.
• Benefits:
• Immediate tax deductions for contributions.
• Ongoing control over the timing and distribution of charitable gifts.

Benefits of Charitable Trusts

Tax Advantages

• Income Tax Deductions: Charitable contributions made to a charitable trust can qualify for immediate income tax deductions.
• Capital Gains Tax Benefits: Donating appreciated assets through a charitable trust can help avoid capital gains taxes on the sale of those assets.
• Estate Tax Reduction: Charitable trusts can reduce estate taxes, especially when the trust’s assets are donated to charity after the settlor’s death.

Philanthropic Legacy

• Charitable trusts offer individuals the ability to leave a lasting legacy by supporting charitable causes that matter to them. These trusts help ensure that the settlor’s charitable intentions are honored, often for many years after their death.
• Donating to charity through a trust can be a meaningful way to impact future generations and improve causes the settlor cares about.

Income for the Donor or Beneficiaries

• With a charitable remainder trust, the donor or their designated beneficiaries can receive income for a specified period, providing a stream of income while also benefitting a charitable cause. This makes charitable giving financially beneficial to the donor, particularly during retirement.

Flexibility

• Charitable trusts can be structured in various ways to meet both the donor’s philanthropic goals and financial needs. Whether the focus is on maximizing tax benefits, creating income streams, or leaving a long-term charitable legacy, a trust can be tailored to the donor’s vision.

How Charitable Trusts Work

• The Settlor (person establishing the trust) contributes assets, such as cash, real estate, or securities, into the trust.
• The Trustee manages the trust’s assets and follows the settlor’s instructions regarding how the assets are to be distributed—either during the settlor’s lifetime or after their death.
• Beneficiaries include the charitable organizations receiving the assets or income, as well as any non-charitable beneficiaries if applicable.

Why You Need a Charitable Trust

If you have charitable goals and wish to make a meaningful impact, a charitable trust can help you achieve that while providing tax benefits. Whether you are looking to support a cause in the short term or leave a long-lasting legacy, charitable trusts offer a way to manage your philanthropic giving efficiently and effectively.

Why Choose SMITH | ASHCRAFT

Our attorneys specialize in charitable planning and can guide you through the process of setting up a charitable trust that meets your personal, financial, and philanthropic objectives. We ensure that your charitable intentions are fulfilled, your tax benefits are maximized, and your legacy endures for generations.

Contact us today to learn how a charitable trust can help you give back and create a meaningful impact.