Your Guide to Setting Up a Charitable Trust

A lot of detailed thought goes into estate planning. When deciding how to disperse your assets, you may be interested in supporting your favorite charity. In this case, consider opening a charitable trust. This type of trust gives you the option of leaving a portion or the full amount of your estate to a 501(c)(3) organization. Money, real estate, stocks, and other valuable assets can all go into your charitable trust. Plus, you’ll gain special tax benefits. So, how does setting up a charitable trust work? Read on as we break down the essentials, step by step.

Follow These Steps When Setting Up a Charitable Trust

Setting up a charitable trust is a relatively straightforward and painless task. Contrary to popular belief, you don’t need to have millions to start one. With a minimal amount of money, you and your family can make a difference while reaping some financial benefits.

1. Calculate Which Assets Will Go Towards Your Trust.

   To begin, determine precisely how much you’re willing and able to put towards your trust. No matter how secure you feel with this investment, keep in mind that charitable trusts are irrevocable. They cannot be modified, even if your circumstances change. Different assets, ranging from money and stocks to individual interests, such as art and real estate, can all be invested. Consider which assets aren’t pertinent to your future and plan accordingly.

2. Pick a Charity or Community Cause to Benefit from your Trust

   The next step involves choosing a charity or cause to support. As outlined by the IRS, your selected charity should classify as tax-exempt. Anything qualifying as a non-profit organization or a public charity usually meets the requirements. Common types of charities range from public and private universities to religious entities and churches.

3. Figure Out Which Type of Charitable Trust to Set Up

   Charitable trusts can benefit both your heirs and the charity you’ve designated. While they come in multiple forms, there are two main types of charitable trusts. Depending on your estate planning needs and goals, you may favor one over another.

   Charitable Remainder Trust: With this form of trust, also called a split-interest trust, income is paid to the non-charity beneficiaries first. At the end of the payment period for the trust, the remaining assets are given to the designated charity. Going forward, the charitable organization serves as the trustee for the remaining lifespan of the trust.

   Charitable Lead Trust: Charitable lead trusts are the opposite of charitable remainder trusts. Here, your charitable beneficiary receives a set amount of income. The remaining assets are distributed to either the organization or to the recipients selected by the grantor. This option is usually best for those whose primary goal is to benefit the charity.

4. Determine Your Beneficiaries and Distribution Plan

   If you plan to allocate your assets to both a charity and non-charity entity, then you’ll need to designate beneficiaries. In the case of a charitable remainder trust, the recipient is usually yourself or a family member. You’ll also need to choose how payments are collected. Typically, the beneficiary will receive monthly payments, either as a fixed annuity or a percentage of the trust’s total value.

5. Draw Up a Trust Document

   With your objectives set and a plan that makes sense for you, you’ll need to register your charitable trust. Unless the trust is part of your will, you’ll transfer in assets at this time. To make it official, an attorney can help you draw up and sign specific documentation.

As with any estate planning task, no two charitable trusts are the same. Whether you’re starting to consider setting up a charitable trust or you’re close to finalizing it, Solomon, Steiner & Peck, Ltd. is here to help. Our attorneys make sense of the complex processes involved in estate planning with patience, respect, and compassion. Contact us today to schedule a consultation with a member of our legal team.