Charitable Trust

A charitable trust is an account of money that is set up to fund charitable causes, both for organizations and for individuals. The difference between this type of account and other bank accounts is that it is irrevocable, meaning that the person or organization leaders are not able to simply withdraw the money at will. Instead, small amounts are given out, usually as the result of interest on the principle amount of the fund. A charitable trust is usually set up by a single person with direct instructions regarding how the money is to be paid out. The actualization of the trust commonly begins with the death of the donor and the settling of the will.

The most common form of charitable trust is called a charitable remainder trust. In this type, the money is divided between a primary beneficiary and a charitable group. Thus, a person will receive a set amount of money for a certain period of time and then the rest of the funds will be given to the charitable organization. By American law, these disbursements are not taxable and are listed on tax forms as a tax deduction for charitable income. However, in some situations the primary beneficiary may be required to pay capital gains taxes depending on the particular situation.

Another type of charitable trust is called a charitable lead trust. This is similar to a remainder trust, but with a reversal of beneficiaries. The charitable organization will receive a regular donation at set intervals for a certain amount of time. At the end of this time period, the money that is still in the fund is returned to the donor if they are still alive or another beneficiary as named by the donor’s will. In this manner, a person can provide money to a charitable group, but have it revert to their heirs at the time of passing.