Are you a philanthropist at heart? If so, giving is likely part of every aspect of your life. You undoubtedly have several charities or causes that are dear to your heart and to which you devote both time and money on a regular basis. If so, you also probably wish to include those causes in your estate plan as well. Including outright gifts to your chosen charities is one simple way to accomplish that goal; however, it is neither the only way nor the best way for most people to incorporate charitable gifting in their estate plan. The attorneys at Morris Hall PLLC explain charitable trusts and how including one in your estate plan will be beneficial to both you and to your chosen charities.
Can’t I Just Make Charitable Gifts in My Last Will and Testament?
This is one of the most frequently asked questions by those who wish to include philanthropy in their estate plan. You can make charitable gifts in your Will; however, there are a number of reasons why making 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, if you hope to involve your children, or other younger relatives, in your philanthropic endeavors, a trust is a better means of continuing your charity work.
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Trustor (also referred to as a Settlor 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 is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Trustor and which is typically activated by a provision in the Trustor’s Will. A living trust is a trust that takes effect as soon as all the Trustor executes and funds the trust.
Benefits of a Charitable Trust
Using a trust for charitable gifting allows you a considerable amount of control over how and when gifts are distributed to your chosen charities. A trust also offers additional estate planning and financial advantages that making direct gifts in your Will doesn’t offer. You can create a trust that is devoted entirely to charitable gifting or one that includes both charitable and non-charitable beneficiaries, known as “split-interest” trusts. Specifically, charitable lead trusts (CLT) and charitable remainder trusts (CRT) are specialized trusts that allow you to gift to both charitable and non-charitable beneficiaries within the same trust.
A charitable lead trust (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.
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.
If you wish all of the assets in the trust to be used for philanthropic gifting, a living trust devoted entirely to charitable beneficiaries can be established. Along with extending the length and value of the gifts you bestow on your chosen charities, you will likely also garner valuable tax benefits for yourself and/or your estate. Because you create the trust terms, you can also retain a significant amount of control over how your gift is utilized by the beneficiary if you choose to retain that control. The Trustee of your trust is legally required to administer the trust according to the terms you create and those terms are legally binding on the beneficiaries, ensuring that your assets will be used according to your wishes, both while you are alive and after you are gone.
Contact Arizona Trust Attorneys
If you have additional questions or concerns about charitable trusts, or would like to get started with your estate planning, contact the experienced Arizona trust attorneys at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.