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Charitable Trusts: How to Give to Charity and Your Family

Dec 15, 2015 | Written by: Daniel S. Makoski, Esq. |

A charitable trust exists in three basic forms: a charitable lead trust, a charitable remainder trust, and a trust with a charitable beneficiary. Each trust provides for a different timing of when a gift will be made to a charity, and thus alters what percentage will be included in your estate.

Charitable Lead Trust: A charitable lead trust typically pays a portion (or all) of the income from your trust to a charity for a specific period of time. The timing can be a set period of time (e.g., 5 years, 10 years, etc.) or an event in the future (e.g., pay income to the charity until the Chicago Cubs win a World Series). After the period of time or the triggering event passes, the remaining assets of the Trust typically revert in some fashion to your family. For example, a trust might pay all income to Charity X for 10 years and then all income to your child for the rest of her life.

Charitable Remainder Trust: A charitable remainder trust is similar to a charitable lead trust, but in reverse. The non-charity entity receives the funds for a specific time period and then the remaining assets pay to the charity. For example, a charitable remainder trust may be written to pay all income to your child for 10 years and then the remaining assets to Charity X.

Trust With A Charitable Beneficiary: This is a standard trust that names a charity (or multiple charities) as the beneficiary. Generally, this type of trust will pay income to the charity and then be directed to distribute any principal assets outright to the charity at some point in the future.

All three charitable trusts provide your estate with an immediate estate tax deduction. The amount of the deduction is based on the value of the charity’s interest. In a charitable lead trust, the value is based on the value of the time period over which the donations will be made. A charitable remainder trust calculates its deduction amount by determining what the charity’s future interest will be worth, compared to the first-in-line interest of your family. The trust with a charitable beneficiary will more than likely result in the highest allowable estate deduction because the charity is receiving all of the assets as opposed to a reduced portion.

The above options are just a few ways to plan for gifts to your family while also establishing a long-term legacy and an example for your family to follow.


Daniel Makoski's primary areas of concentration are tax planning, tax controversy, transactional business matters, wills, trusts, and estate planning.  Contact Mr. Makoski at Gebhardt & Kiefer, PC at 908-735-5161 or via email.