Whether your goals are to reduce tax exposure, to contribute to a charity, or both, a charitable trust may be a great option.  A charitable trust is a form of a “split interest” trust, because the benefits of the trust are split between a charity and one or more person.  There are generally two types of charitable trusts: (1) a Charitable Remainder Trust and (2) a Charitable Lead Trust.

What is a Charitable Remainder Trust?

When creating a Charitable Remainder Trust, the grantor (the person creating and funding the trust) funds the trust and designates an IRS-approved charitable organization (usually a 501(c)(3) organization) as the charitable beneficiary.  Then during the grantor’s lifetime, he or she receives regular payments calculated as a fixed annuity or a percentage of the trust’s value.  Upon the grantor’s death, the charity receives all of the remaining trust assets.

What is a Charitable Lead Trust?

A Charitable Lead Trust is essentially the opposite of a Charitable Remainder Trust.  Where in a Charitable Remainder Trust, the grantor receives payments during his or her lifetime and the charity takes the remaining assets after the grantor’s death, a Charitable Lead Trust pays annuity or calculated payments to the charity during the grantor’s lifetime and non-charitable beneficiaries (often the grantor’s children or grandchildren) receive the remaining trust assets at the time of the grantor’s death.

Why Create a Charitable Trust?

In addition to general charitable and donative purposes, charitable trusts are often established for tax saving and asset protection purposes.  By transferring assets into a charitable trust, it may be possible to avoid certain gift, income, capital gains, and estate taxes.  Charitable trusts are complex trusts and may or may not be the right choice for your estate plan.  If you live in Minnesota and would like to schedule an estate planning strategy session, please contact your attorney at Melchert Hubert Sjodin.