If philanthropy is important to you in your everyday life, you will likely want to include charitable gifts in your estate plan as well. While you can make charitable gifts in your Will, there are a number of reasons why making gifts in your Will is not the best option. Instead, many people choose to use a trust for their charitable gifting. The Lincolnshire trust lawyers at Hedeker Law Ltd. explain how a trust can be used for charitable gifts.
What Is a Trust?
A trust is a legal relationship that entails property being held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a Maker or Grantor), who transfers property to a Trustee, also named by the Settlor. The Trustee holds that property for the benefit of the beneficiaries named in the trust agreement. All trusts are first divided into one of two categories – testamentary or inter vivos – the latter of which is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Settlor and which is typically activated by a provision in the Settlor’s Will. A living trust is a trust that takes effect as soon as all the formalities of creation are in place. Living trusts are further divided into revocable and irrevocable trusts. As the name implies, a revocable living trust is one that can be modified or revoked by the Settlor at any time and without the need to provide a reason. An irrevocable living trust, once it takes effect, cannot be modified or revoked by the Settlor for any reason.
Using a Trust to Make Charitable Gifts
One of the many benefits to using a trust for charitable gifting instead of making those gifts in your Last Will and Testament is that a trust allows you a considerable amount of control over how and when gifts are distributed to your chosen charities. A trust also offers additional estate planning and financial advantages that making direct gifts in your Will doesn’t offer. A trust can be used solely to make charitable gifts or a trust can be used to make gifts to both charitable and non-charitable beneficiaries. Trusts that make gifts to both charitable and non-charitable beneficiaries are referred to as “split-interest” trusts.
Charitable Lead and Charitable Remainder Trusts
Creating a charitable lead trust (CLT) or a charitable remainder trust (CRT) is a very popular way to include charitable gifts in your estate plan. CLTs and CRTs are specialized trusts that are specifically structured to make gifts to both charitable and non-charitable beneficiaries within the same trust.
A CLT first makes distributions to a charitable beneficiary for a specific period of time. At the end of the designated time period, the remaining assets, plus any interest that has accrued, are distributed to the non-charitable beneficiary. For example, imagine that you established a CLT trust and funded it with $500,000 in assets. The terms of the trust direct a yearly distribution of $50,000 to your favorite charity for ten years with the remainder to be distributed to your children at the end of the ten year period. Remember, the trust will have earned a considerable amount of interest during the intervening ten years.
A charitable remainder trust (CRT) works in reverse with the non-charitable beneficiary receiving distributions first and the remainder (plus interest) going to the charitable beneficiary. You can also use the life of a person as your defining benchmark. For instance, you could direct yearly distributions of a designated amount from a CRT trust for the life of your child with the remainder to be distributed to a designated beneficiary upon the death of your child.
There is an infinite number of ways you can structure a trust to facilitate the inclusion of charitable gifts in your estate plan. Talk to your estate planning attorney about the best way to include a trust in your overall estate plan.
Contact Lincolnshire Trust Lawyers
Please join us for an upcoming FREE estate planning seminar. If you have additional questions or concerns about including a trust in your estate plan to help with charitable gifting, contact the experienced Lincolnshire trust lawyers at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.