When California residents begin setting up their estate plans, they may decide to leave some of their money to charity. In this situation, some people may want to set up a charitable trust.
A charitable trust is usually set up specifically to give funds to charities. According to the Internal Revenue Service, this trust typically is considered a private foundation. This means that it may need to meet requirements about how it is administered and how long it is in existence. Most of the time, a charitable trust still needs to pay taxes. However, people may apply for tax-exempt status and in this situation, the trust generally becomes a public charity.
When people decide to set up a charitable trust, they usually need to decide which kind they will establish. Fidelity says people can generally set up the trust to meet their needs. This means that some types allow people to also leave assets to their family members, while others devote all of the assets to charity and give people the freedom to switch charitable beneficiaries. It is important for people to remember that a charitable trust typically has maintenance costs. Additionally, this kind of trust is usually irrevocable. This means that once people have set up the trust, they cannot simply change the terms if they feel this is necessary.
Sometimes people may want to ensure that a trust will also benefit their family members. People can usually set up a charitable lead trust or a charitable remainder trust if they want to divide their assets between a charity and their family. If people choose to create a charitable lead trust, they can usually decide how much money will go to charity each year. The trust typically ends after a set period of time and a person's family usually receives the rest of the assets. A charitable remainder trust allows people to put specific assets, such as property, inside a trust. While this kind also terminates after a certain amount of time, a person's family members do not receive the rest of the assets. Instead, the remaining assets typically go to charity and family members receive all of the interest the trust accumulated during its lifetime.