01 Dec Funding a Charitable Trust Is a Great Way to Make a Difference

Every year, as the season of giving approaches, many people make donations to charitable causes. They participate in gift drives, support their local food banks, and renew their museum memberships. But for those who want to make an even bigger impact, funding a charitable trust is a great way to do it. 

How Do Charitable Trusts Work?

A charitable trust allows you to to invest your assets, support a cause, and get a tax write-off. You can also use charitable trust as a strategy for reducing the size of your estate if it is near the threshold for federal estate tax. Depending on the type of trust you choose, you can also use it to create a steady income for yourself or leave an inheritance for your loved ones.

Charitable Remainder Trusts (CRTs)

This is a type of irrevocable trust, which means giving up ownership of any assets you use to fund it. However, you can still collect income from the trust during your lifetime. 

A charitable remainder trust needs to have at least one living beneficiary. They can collect payments from the trust for a term of 20 years or for the rest of their lifetime. After they pass away or the term expires, the remaining funds in the trust will go to the selected charity. (The donation must amount to at least 10% of the initial market value of the assets used to fund the trust.)

With a CRT you can plan for a major donation and a predictable income at the same time. For example, Susan is 62 and nearing retirement. She’s not wealthy, but wants to stretch what she has and hopefully give something back. A charitable trust can help her create a reliable income stream, reduce her tax burden, and support a cause she cares about after she’s gone. 

Charitable Lead Trusts (CLTs)

Like a CRT, a charitable lead trust is also an irrevocable trust. However, distributions happen in the exact opposite way. With this type of trust, the charity gets a set contribution every year, and the remaining assets go to a living beneficiary.

For instance, take Mark and Lisa. With their high net worth, they didn’t need any additional income. Instead, they wanted to give steady gifts to their favorite nonprofits during their lifetime, while preserving the bulk of their wealth for their children’s inheritance. They opted to put $2 million of investments into a charitable lead trust for 20 years. When the term ends, their kids can inherit all of the remaining assets plus the growth. 

Other Types of Charitable Giving

Donor-Advised Funds

These non-profit investment firms manage the funds you contribute and help you maximize your giving. During your lifetime, you can make as many contributions as you like, large or small. You get to choose which organizations your giving supports, and how and when they will receive your contributions. Every donation you make is tax-deductible, and any growth in capital is tax free. Donations to donor-advised funds are also exempt from gift taxes. 

Making Charitable Donations in Your Will

Another option is to include a “bequest” in your will. However, this means your contribution won’t take place until after your estate is settled. And since wills have to go through probate, this could take some time. There are other drawbacks as well; for instance, wills become a matter of public record. If you want to make an anonymous donation, setting up a trust is a better move. And because wills can be challenged, a charitable trust offers a more secure way to give. 

Start Giving with a Plan That Works for You

Whether you’re inspired by the season of giving or looking for a long-term way to support a cause you care about, Phelps LaClair can help you choose the right strategy. From funding a charitable trust to making charitable donations in your will, we’ll walk you through your options and help you create a plan that benefits your loved ones and the organizations that matter most to you.

Ready to get started? Contact us today to schedule a free consultation.

Images used under creative commons license – commercial use (12/01/2025).  Photo by Photo by Samuel Peter on Pexels