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Learn about the types of charitable trusts  

On Behalf of | Feb 28, 2022 | Estate Planning |

Las Vegas residents who wish to contribute to a non-profit or charitable organization they support may consider setting up a charitable trust. Before doing so, it is important to have a thorough understanding of the different types of charitable trusts available, and the advantages and disadvantages of each.

A charitable trust distributes your assets to an organization of your choice. There are two main types of charitable trusts:

  • Charitable lead trust
  • Charitable remainder trust

A charitable lead trust is designed to provide funds to a specific organization for a certain number of years. You may set up this trust to also provide you or your beneficiaries with a steady income stream. When the trust expires, the remaining assets go back to you or your beneficiaries. They do not stay with the organization.

The difference with a charitable remainder trust is that when the trust expires, or upon death of the donor, the remainder of the assets in the trust go to the organization. Like a charitable lead trust, a charitable remainder trust can provide you with an income stream during your lifetime, as well.

Charitable remainder trusts can be set up as a charitable remainder annuity trust, which involves an amount distributed as an annuity each year, or a charitable remainder unitrust. In this type of trust, a percentage of the trust value is distributed. This percentage is recalculated each year.

Benefits and drawbacks of charitable trusts

There are several benefits to setting up a charitable trust, many of which involve tax benefits. A charitable trust can help you avoid paying capital gains taxes on assets that have increased in value and provide you and your beneficiaries an income stream during the life of the trust.

Having assets in a trust will reduce your overall estate value, potentially meaning lower estate taxes. Finally, you will have the satisfaction of knowing you are contributing toward a cause that means a lot to you.

However, charitable trusts are irrevocable. This means you cannot cancel or revoke the trust once established. They also require funding sufficient to provide income to both you and your chosen charity.

Deciding if a charitable trust is right for you, and if so, which type, is a complex decision. Speaking with an estate planning attorney could help.