Some people have a cause they feel passionate about and want to share their wealth with their favorite cultural or social organization. By establishing a charitable trust, you may accomplish charitable giving while also providing for your family.
Trusts used for charity purposes generally take the forms of a charitable remainder trust or a charitable lead trust.
Using a charitable remainder trust
If you prioritize providing for your family while giving to charity later, you might consider a charitable remainder trust. People create these trusts to dispense money to designated beneficiaries with a stream of income for a specific period of time. You may also receive money from the trust. After the conclusion of this period, the remaining assets in the trust will go to one or more charitable organizations of your choice.
Using a charitable lead trust
You may have reasons not to give money to family as of the current moment. Your relatives may be young and self-sufficient. Instead, you might want to provide money as an inheritance for later while giving money to charity now.
This is how a charitable lead trust works. This kind of trust provides an income stream to one or more charitable organizations for whatever period you designate. Afterward, the remaining assets in the trust transfer to your designated non-charitable beneficiaries.
Possible drawbacks of charitable trusts
Both of these trusts offer potential tax savings in that you remove money from your taxable estate, reducing your gift taxes and possible federal estate taxes. In addition, when you establish a charitable remainder trust, you can claim a charitable deduction on your income taxes for the estimated value of the charitable donation.
However, since these trusts are irrevocable, you must relinquish control of the assets you place into the trust. This means you will no longer have direct access to those funds during your lifetime, which may be a concern if you need the money for other purposes.
Carefully considering your personal and financial goals can help you determine which type of charitable trust is the better fit for your estate planning needs, or if other estate planning methods are more appropriate to meet your priorities.
