For many people, philanthropy is part of their everyday life. If you are someone who believes strongly in charitable gifting, you may wish to continue that charitable gifting in your estate plan. That may lead you to consider the best way to make charitable gifts in your estate plan. The Coral Gables trust attorneys at Stivers Law discuss making a charity the beneficiary of a trust you create.
Gifting to Charity Using Your Last Will and Testament
While you certainly can make charitable gifts in your Will, there are several reasons why making charitable gifts in your Will is not the best option. To begin with, using your Will to make charitable gifts means you will almost surely miss out on tax benefits that would otherwise be available when making charitable gifts. In addition, when you make a direct gift in your Will, you lose all control over how that gift is used once the transfer is complete. Finally, gifts made using your Will are not made until after your death. If philanthropy is part of your daily life now, a trust is a much better vehicle for distributing those gifts because it can be used now and after you are gone.
Trust Basics
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a Maker or Grantor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. All trusts are first divided into one of two categories – testamentary or inter vivos – the latter of which is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Settlor and which is typically activated by a provision in the Settlor’s Will. A living trust is a trust that takes effect as soon as all the legalities of creation are in place. Living trusts are then further divided into revocable and irrevocable living trusts.
Making a Charity a Beneficiary
There are several ways in which a charity can be included as a beneficiary of a living trust. You can create a trust that is devoted entirely to charitable gifting or one that includes both charitable and non-charitable beneficiaries, known as a “split-interest” trust. Specifically, charitable lead trusts (CLT) and charitable remainder trusts (CRT) are specialized trusts that allow you to give gifts to both charitable and non-charitable beneficiaries within the same trust.
A CLT first makes distributions to a charitable beneficiary for a specific period of time or for the life of a person. At the end of the designated time period, the remaining assets, plus any interest that has accrued, are distributed to the non-charitable beneficiary. For example, you might decide to make an annual gift to a favorite charity for ten years, after which the remaining assets in the trust will be distributed to your children. A charitable remainder trust (CRT) works in reverse with the non-charitable beneficiary receiving distributions first and the remainder (plus interest) going to the charitable beneficiary. The non-charitable beneficiary will receive payouts at least annually for your lifetime, the life of another person, or for a set number of years. With this type of trust, you might provide annual distributions to your adult child for his/her lifetime with the remaining trust assets being distributed to a charity after your child’s death.
Along with allowing you to continue your charitable gifting long after you are gone, including a charity as a beneficiary of a living trust can provide important tax advantages to you while you are still alive.
Contact Coral Gables Trust Attorneys
For more information, please join us for an upcoming FREE webinar. If you have additional questions or concerns about making a charity the beneficiary of a trust, contact the experienced Coral Gables trust attorneys at Stivers Law by calling (305) 456-3255 to schedule an appointment.
Justin serves as a member of the American Academy of Estate Planning Attorneys (AAEPA), a national organization comprised of legal professionals concentrating on estate planning. As a member of the Academy, he receives ongoing, comprehensive training on modern estate planning techniques.
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