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The basics of charitable trusts

On Behalf of | Oct 14, 2019 | Estate Planning |

Establishing a charitable trust allows you to support a meaningful objective while accessing tax savings. You can create this type of trust either during your lifetime or as part of your estate plan. 

If you want to donate to an existing charity, read on for answers to common questions about charitable trusts. 

How does a charitable trust work? 

When you establish a trust, you must transfer the assets you plan to donate into the ownership of that trust. To qualify as a charitable trust, the beneficiary must qualify as a tax-exempt charity according to Internal Revenue Service. The charity then administers the investments in the trust and provides you or your estate with an agreed-upon portion of income from these funds.  

How much income will I receive? 

You can structure your charitable trust to provide either: 

  • A fixed annuity, which provides a specific dollar amount each year 
  • A percentage of the annual trust assets, which must be at least 5% to meet IRS regulations 

How long does a charitable trust last? 

You can set up a trust that lasts a certain number of years or that expires when you die. At the end of the designated period, the remaining assets in the charitable trust will belong to the benefactor organization. 

What are the tax benefits of a charitable trust?  

An individual who establishes a charitable trust can deduct its value from his or her income tax. You must spread out the deduction over five years and may not deduct the amount of income you will receive from the trust over its lifespan. Because the charity administers the trust, you also avoid capital gains tax on investment growth for the assets contained in the trust. 

In addition, the charitable trust portion of your estate is not subject to federal income tax. If you have a sizable estate, this lessens the tax burden for your spouse, children and other benefactors. 

Before donating a cash gift to your favorite charitable organization, consider the benefits of a trust. A charitable trust may be an advantageous strategy in your estate plan. 



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