Planning for Giving: An Introduction to Charitable Trusts

By Joyce M. Hillis

There are many ways to support charitable organizations in estate planning. The simplest option is an outright gift to a charity. The more advanced options include certain charitable trusts which provide for both charitable and non-charitable beneficiaries, including family members. While the outright gift is the simplest option to fulfill a charitable purpose, charitable trusts provide additional incentives to act on those charitable inclinations. This blog post provides a brief introduction to the two types of charitable trusts: Charitable Remainder Trusts and Charitable Lead Trusts.

Over the life of a charitable remainder trust (“CRT”), the trustee issues trust income to certain beneficiaries, at least one of which is not a charitable organization. When the trust terminates, the remainder interest of the trust is then transferred to a charitable organization. The settlor of the trust identifies the charitable organization that should receive the balance of the trust’s interest in the trust instrument. A CRT would be beneficial for certain settlors who would like to retain a stream of income prior to a final distribution to a charity.

Like a CRT, a charitable lead trust (“CLT”) provides a benefit to charitable organizations, but its distributions the opposite of those made by a CRT. A CLT makes its initial distributions to a charitable organization for a fixed number of years before the remaining trust assets are distributed to non-charitable beneficiaries. Phrased simply, a CLT “leads” with the trust’s charitable distribution, while a CRT gives the “remainder” of the trust and its principal to the charitable organization. In either case, the settlor has flexibility to provide for both charitable interests and non-charitable beneficiaries in estate plans.

Charitable trusts are a helpful option for clients who wish to diversify the beneficiaries of their trusts. These trusts impose certain limitations, however, for the trust must be administered in accordance with strict regulations imposed by the IRS. To learn more about these trusts and whether they would complement your estate plans, please contact the estate planning attorneys at Cleveland, Waters and Bass.