Creating your estate plan means being able to outline what assets will be given to which beneficiaries. While you might be focused on caring for your family members and loved ones, you may also decide that you want to take care of favorite charities. This is possible via charitable trusts.
There are two primary forms of charitable trusts that can allow you to take care of your loved ones and the charities of your choice: a charitable lead trust and a charitable remainder trust. Both types of charitable trusts can be set up to distribute income from assets, principal assets or both.
It is important to ensure that any charity that you name is classified as a charity by the Internal Revenue Service so you can receive a tax deduction for the portion of the assets that will be donated.
What’s the difference between charitable trusts?
A charitable lead trust is one that distributes part of the trust to the named charity. This is typically handled by setting a term limit for the distributions. Once that time passes, the remainder of the trust is handed down to other beneficiaries in accordance with the terms you set in the trust.
A charitable remainder trust is the exact opposite. This type of trust distributes assets to your named beneficiaries first, typically for a specific amount of time. Once that time expires, the trust is distributed to the charity in accordance with your instructions.
Charitable trusts are irrevocable, so you can’t change this type of trust once you’ve established and funded it. And while a charitable trust is something many people choose to establish, it’s not a substitute for a comprehensive estate plan. You still need to consider other assets, end-of-life plans and any other final wishes you may have. Seeking personalized legal guidance can help you to get started.