In New York, there are many high net worth people who create charitable trusts. It’s worth thinking about why they do this. Charitable trusts are a unique estate planning measure. They serve several parties at once. The creators of charitable trusts are able to get tax breaks and support their pet causes. Meanwhile, non-profit organizations receive the funding they need to continue doing good.
How charitable trusts are structured
There are two different ways to structure charitable trusts. What sets them apart is the way the funds are controlled and dispersed in the trust. Charitable trusts contain assets that are invested. These may be managed either by the charity, in a remainder trust, or by the donor, in a lead trust.
In a remainder trust, the assets are managed by the charity for a set period of time. Often, when that time period ends, the money in the trust goes directly to the charity, becoming its property. During the life of the trust, the proceeds of the investments go to the charity.
A lead trust is different. In this structure, the donor manages the assets that have been set aside. When the investments make money, that may be dispersed partly to the charity and partly to other beneficiaries designated by the donor. Charitable lead trusts allow donors to claim income tax deductions based on the value of the trust.
When deciding how to structure a trust, it’s always prudent to consult an experienced lawyer. Attorneys experienced with estate planning, might know how to help their clients get the most benefit from their assets. Charitable trusts might help wealthy people be tax-efficient while giving back to their communities.
