The Benefits of a Charitable Trust

Many Maryland residents are interested in ways to leave a legacy after their deaths. Charitable trusts allow you to support causes you care about, reduce estate tax burdens on beneficiaries, and help you meet your philanthropic goals. They are also an important tool for non-profit organizations that rely on donations from supporters to plan for the future. Here’s how they work.

Charitable Giving as an Estate Planning Tool

Your legacy means more to you than a bank account balance. It means putting your assets behind the issues, principles, and organizations you have supported in life. By building charitable giving into your estate plan, you can make sure that support continues, even after your death. Maryland law allows you to build charitable bequests or testamentary gifts into your Last Will and Testament or your revocable living trust. This allows you to direct that a specific dollar amount or percentage of your estate will be paid to the charitable organization during the distribution of your estate. You can also establish a separate charitable trust to manage those donations.

What Are Charitable Trusts?

A charitable trust is an estate planning tool that allows you to donate assets to non-profit organizations and other tax-exempt charities. Once established, a charitable trust can provide tax benefits to you and your estate, while also providing predictable income and inheritances to your beneficiaries and charities of choice.

While charitable bequests are included within a larger estate planning document, charitable trusts are legal entities set up specifically to address your philanthropic priorities. Maryland recognizes two forms of charitable trusts:

• Charitable Remainder Trusts (CRTs): This charitable trust allows a non-profit organization or charity to receive whatever assets are left in your estate after your needs and your named beneficiaries’ needs have been met. This puts your beneficiaries first, and the charity second.

• Charitable Lead Trusts (CLTs): This charitable trust pays income to a charitable organization for a set period of time. After that period, the remaining assets are distributed to your named beneficiaries. This puts the charity first, and your beneficiaries second.

CRTs and CLTs can be structured two different ways:

• • Annuity trusts (CRAT or CLAT) pay a fixed amount to the beneficiaries (in a Charitable Remainder Annuity Trust) or the charity (in a Charitable Lead Annuity Trust) each year. This provides stability and predictability to the person or entity receiving the payments, but leaves the final value up to the success of the trust’s investments.

• Unitrusts (CRUT or CLUT) pay a fixed percentage of the trust assets to the beneficiaries (in a Charitable Remainder Unitrust) or the charity (in a Charitable Lead Unitrust) each year. This protects the principal of the trust assets over the interim payments, but makes it harder for the person or entity receiving the payments to predict the amount received.

Which form is right for you depends on the type of organization you are funding, your philanthropic goals, the size and nature of your estate, and your beneficiaries’ short- and long-term needs.

The Benefits of Charitable Trusts for Non-Profit Organizations and Families

There are a variety of benefits to creating a charitable trust, from peace of mind to legacy building. However, there are three that are especially noteworthy:

Control Over Charitable Gift Giving

One reason to create a charitable trust rather than another form of charitable bequest is that trusts give you more control over the way your assets are distributed. While testamentary gifts are generally paid in lump sums during the estate administration process, the trust documents forming a charitable trust can designate how those payments will be made over time, and can place limits on the ways the funds can be used. Depending on the size of the charitable trust and how it is structured, it could be used to fund grants or establish a foundation to support a range of philanthropic causes that match your stated priorities and goals, even if the specific programs or non-profit organizations did not exist at the time you made the gift.

Tax Benefits

Charitable trusts can also provide significant tax benefits to donors and beneficiaries alike. Donors who place funds or property in a charitable trust may be able to receive immediate tax deductions based on its value. They may also avoid capital gains taxes on appreciated property transferred into the charitable trust as a sort of in-kind donation. As those assets are bought, sold, invested, and grown within the trust, the resulting income is held tax-free. Further, the use of a trust can remove assets from your taxable probate estate, reducing the court costs and estate taxes your beneficiaries will pay after your death.

Predictable Donations for Non-Profits and Charities

Many non-profit organizations will encourage regular donors to make a testamentary gift or charitable trust as part of their estate planning. That is because charitable trusts are beneficial for charities and donors alike. Non-profit organizations are often vulnerable to changes in their donor’s circumstances, disposable income, or preferences. When a top donor withdraws his or her contribution, it can put a squeeze on the charity’s operational budget, making it harder for them to pursue their goals. CLTs provide predictable income for charities year after year, and CRTs offer the promise of funds in the future. Both types of charitable trusts can help the organizations plan future operations and capital improvements, without having to worry about dipping into other, often less predicable sources of income.

How to Set Up a Charitable Trust in Maryland

Establishing a charitable trust requires knowledge and skill to navigate complex state and federal laws. To get the full legal and tax benefits of a charitable trust, you need to work with a knowledgeable trust attorney like Henry Nash who can help you choose the right kind of charitable trust, and ensure it is set up correctly. The Law Office of Henry Nash provides adept counsel for probate and a wide variety of estate planning matters in Maryland, and can help you create an estate plan that provides for the people and causes most important to you. Contact us online or call (301) 681-6274 to schedule a consultation at our Rockville Office.