There are two types of charitable trusts, each offering different benefits. Find out which option is right for you.
Charitable trusts are a great vehicle for donations to charitable organizations. These trusts let donors take a deduction on their taxes, and they are effective tools for income and estate tax planning. By funding a charitable trust with appreciated investments, investors can sell assets without triggering a capital gains tax. Likewise, putting assets into the trust reduces the size of an estate and the amount of estate taxes it would owe.
There are two main types of charitable trusts: Charitable Remainder Trusts (CRT) and Charitable Lead Trusts (CLT). Before making a decision, it’s important to understand the difference between these two options and the unique benefits each type provides.
Charitable Remainder Trust
A charitable remainder trust (CRT) is an irrevocable trust that disperses income to the non-charitable beneficiaries then allocates the remainder of the donated assets to a specified charity at the time of your death or at the end of a specific time period determined by the donor, whichever comes first. Annual payments range from a minimum of 5 percent to a maximum of 50 percent of the total assets in the trust. The income stream can last for a specific period of time (no more than 20 years) or for the life of the recipient.
Charitable Lead Trusts
A charitable lead trust (CLT) is like the reverse of a charitable remainder trust. This type of trust disperses income to a named charity, while the noncharitable beneficiaries receive the remainder of the donated assets upon your death or at the end of a specific term, similar to a CRT. CLTs generally benefit more from gift and estate tax benefits compared to CRTs.
Learn more about the benefits of charitable trusts, or speak with your financial advisor to determine which of these two charitable trusts is the best fit for your personal and financial goals.
