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Home » Estate Planning » How do charitable trusts work and why should I consider one?

Managing your assets after you pass away is integral to estate planning. If you are charitable, you may want to consider giving back to your community after you pass. One way to do this is by establishing a charitable trust. This type of trust can reduce some taxes and allow you to support a cause you care about while also providing for your loved ones.

What is a charitable trust?

A charitable trust is a legal arrangement in which a person donates cash or other assets to a trust. Over a period of time, a designated trustee distributes the money or assets to one or more beneficiaries in the donor’s name. If you are interested in continuing your philanthropic efforts, two types of charitable trusts could benefit your financial plans for your estate:

  • Charitable lead trusts (CLTs): In a CLT, the charity receives income from the trust assets for a specific time, after which the remaining assets go to noncharitable beneficiaries such as family members.
  • Charitable remainder trusts (CRTs): In a CRT, the beneficiaries receive income from the trust assets for a certain time, after which the remaining assets go to the designated charity or charities.

You can also leave non-fungible assets to the trust, including artworks, collectibles or real estate, to generate income for the designated charity.

Leaving a long-lasting legacy

Donating some of your assets to charity can leave a lasting legacy and significantly impact the people you will leave behind. However, setting up a charitable trust requires careful consideration to ensure that your money is used to support the causes you care about most. Before proceeding, consider whether it is the right choice for you and your family.