A charitable trust is very similar to normal trusts in business, where person A (The trustor) gives property or money to person B (the Trustee), for the benefit of person C (the beneficiary). However, like the name suggests this money is used to benefit charitable organizations and purposes. They are often exempt from paying taxes.
A trust must pass certain requirements to be considered.
In order to be qualified as a trust, the charity must benefit an area publicly, be nonprofit, and have a valid and charitable purpose, and examples of this include fixing poverty, education, supporting various religious groups, and trusts for benefiting animals.
In addition, charitable trusts can be set aside by wealthy men and women to leave estates and other portions of their wealth aside for family members or for a charity. They can be set up while the donor is still alive or has passed on, and the charity can either be paid first with a Charitable lead trust, and the rest of the money is given to family or vice versa where the charity is paid last with a charitable remainder trust. In either case, the charity is paid in either a fixed amount all at once or paid annually throughout a set period of time.
In order to apply for a tax-exempt charitable trust, none of the funds can benefit private individuals or the organizers of the trust. The owners of the trust also cannot participate in political activities or lobby with a desire to create change, but politics can be discussed in a neutral setting and awareness can be brought to political issues.
A trust can be used in many ways.
Charitable trusts are mostly used by individuals to ensure wealth is kept safe and free from taxes, keeping the value of assets and giving it to others. It can also make non-income providing property make you some extra money because a trust can sell that asset, keep part of the funds from the sale safe for the charity, and then give you a source of income.
Regardless of why or who you choose to give a charitable trust to, setting your funds to be ‘Donor-advised’ will also give you more control, because you can change where the money goes at any point and it will not be locked into one specific charity. In addition, you can also buy life insurance for your children and family in order to give to them as well as organizations.
Charitable trusts do have various wheels in motion and require communication with charities, family members, tax brokers, and other financial aides in order to make sure you can remain tax exempt and in control of your money while giving as much wealth as you can to both charities and your family