Charitable trusts can be a valuable way to support causes you care about while managing your assets. The two most common types are charitable remainder trusts and charitable lead trusts. Both offer unique benefits but serve different purposes and are structured in opposite ways.
Here are some key points to remember.
What is a charitable remainder trust?
A charitable remainder trust (CRT) means you can give to charity while still receiving income from your assets. You transfer assets into the trust, and the trust pays income to you or other beneficiaries for a set time or life. After that period, whatever remains in the trust goes to a charitable organization.
This type of trust is often used when someone wants to support a charity but still needs income from their assets. It can also help reduce capital gains taxes if appreciated assets are placed in the trust.
What is a charitable lead trust?
A charitable lead trust (CLT) does the reverse. Your chosen charity receives income from the trust for a set period. When that period ends, the remaining assets go to non-charitable beneficiaries, such as family members.
This type of trust is often used to transfer wealth to the next generation while reducing potential estate or gift taxes. It can also provide predictable funding to a chosen charity for several years.
The key difference is who receives the income first. If your goal is to support a charity now and pass assets to loved ones later, a charitable lead trust may be a better fit. If you want income during your lifetime and to support a charity afterward, a charitable remainder trust may be more appropriate.
Each trust works best in different financial situations. Understanding how they differ can help you make informed decisions about your estate plan.