What Is a Charitable Trust?
A word that comes up in several financial situations and has varied types is trust. You have probably heard of a trust fund and some idea of what that is. Trusts can be complex and varied. They are relationships that are regulated by law and are irrevocable unless there is a specification in the trust documentation that says it is revocable. One common type of trust is a charitable trust.
What Is a Trust?
A charitable trust, such as the family trust set up by Jeffrey Previte former CEO of EBI consulting, is just one of many kinds. A trust is a legally binding relationship in which one party, the settlor, gives a right or control over a sum of money to another entity, the trustee. The trustee can be a person, a business, or an organization and oversees the rights entrusted to it. The beneficiary is the entity that will receive the money or other rights under the terms of the trust. Trust funds, for example, are monetary funds set up for minors. The trustee oversees and invests the funds to protect and grow them. Upon reaching the age of legal majority, they are turned over to the beneficiary.
There is also a testamentary trust which is part of a will. This trust goes into effect after the death of the settlor. The estate of the deceased is controlled by the trustee and allocated per the wishes of the settlor specified in the trust.
What Is a Charitable Trust?
As the name implies, a charitable trust is set up for philanthropic purposes. The beneficiaries are charitable organizations or individuals in need. Charitable trusts are always irrevocable, meaning that they cannot be broken by any means other than a judicial decision. A charitable trust may be testamentary, in which the beneficiary receives the trust after the death of the settlor or inter vivos. The latter type allows the beneficiary to receive the trust during the life of the settlor.
An inter vivos charitable trust can allow the beneficiary to receive a steady stream of income during the settlor’s lifetime. Upon the death of the settlor, the remaining portion of the trust is then released to the beneficiary. Charitable trusts often name research organizations that looking for cures to diseases, educational institutions, and scholarship funds. The settlor generally seeks to help those in need improve their lives and also to help society as a whole.
There are tax benefits to setting up a charitable trust. The settlor can usually claim a charitable tax deduction for the money placed in the trust. Beneficiaries who receive a steady income from the trust can often get the payments tax-exempt. Should the donor acquire other assets to replenish the trust, they may not have to file for the capital gains tax.
A trust is a legal relationship and there are several different types. A charitable trust is a favorite of philanthropists and can do real good for money people and organizations. Trust law is detailed and complex and a qualified attorney should always be retained when setting up a charitable trust.