How to Set Up a Charity Trust
Have you ever thought about the future and wondered who will pick up where you leave off, in terms of supporting a favorite charity? Worry no more. You can set up a charity trust that will make certain that whatever your cause may be-- hungry children, a law school scholarship or a medical endowment--it will continue to benefit from your generosity, even after you're gone. Everybody wins if you choose this route but it can get complicated if you're trying to understand the ins and outs of establishing that trust. Consult with your accountant and financial manager so that by the time you meet with your lawyer to set up the trust, you understand exactly what to expect.
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Instructions
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Make certain that your portfolio is substantive enough to justify the legal costs you'll incur when you establish your charity trust. Ask yourself what sort of legacy you hope to leave with this endowment and what the future holds for the nonprofit to which you're granting this gift. Make certain that you're not the agency's sole benefactor because stock market whims and financial fluctuations could put a charity out of business without warning. Finally, make sure you've got the discretionary financial resources to set up your fund.
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Determine, with help from a financial expert, which of the two types of charitable trusts currently available to you is the most advisable conduit for your money. One is a charitable lead trust" and the other is a "charitable remainder annuity trust." Both have benefits and both will give you a one-time tax benefit at the time the trust is drawn up and the money is transferred to the charity.
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Choose a "charitable lead trust" if you want to give the charity accrued interest for a set period of time. Once the time is up, funds revert to a beneficiary of your choice (you or your children). Financial managers prefer this type of trust arrangement when a client has a substantial amount of wealth and is facing likely asset appreciation in the future. You'll avoid being taxed on the funds while retaining control of the investment--especially if you've bequeathed money, rather than real estate or tangible possessions. Tax complications associated with gifts of property can be daunting, so a charitable lead trust is most effective if it's cash-based.
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Opt for a "charitable remainder annuity trust" if you'd like to receive an annual interest payout from the nonprofit in the form of an annuity. You'll have a regular influx of cash if you take this path. Once your money is transferred to the IRS-sanctioned charitable entity, it will be placed in the hands of the nonprofit's board of directors and financial advisers so it can be invested in diverse areas. Your gift will be moved about so it produces the most amount of income for you. Your annual payout will come to you in the form of a percentage of the existing value of the fund or a lump sum agreed upon at the time the cash was handed over.
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Remember that your return on investment is subject to the whims of the investment scene, regardless of the type of charity trust you open. Some people prefer to know that they can count on a $15,000 annuity check coming to them every year, while others want to take a chance on getting more if the trust agreement assigns 10 percent of the value of the property as your annuity payment in a market that's experiencing high returns. Again, this can't be changed, so choose on the basis of your ability to take risks and the amount of cash you'll be receiving from sources other than the trust. Your financial advisers are in the best position to help you sort this out.
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Stay on the straight and narrow when you file your taxes each year--particularly if you have chosen the "charitable remainder annuity trust" path. Your annuity check is going to render untouchable part of the money being held by the charity in your name. If you've bequeathed $250,000 but collected an annuity check totaling $50,000, you can only claim a $200,000 gift. The moment the trust is fully enforced after your demise, it's exempt from any taxation because it's no longer a part of your estate.
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Figure administration fees for administering and transferring trust funds into your personal budget, regardless of the type of trust you've established. Fund managers may charge a percentage of the fund's worth plus a fee as their payment for keeping an eye on how your endowment is being managed. If such charges seem unreasonable or you don't want to pay them, financial managers advise that you think twice before getting yourself into a charity trust. The time may not be right for you.
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Tips & Warnings
Though organizations are delighted to take any amount of money bequeathed by benefactors, large banks typically prefer not to spend time and resources on trusts totaling less than $1 million due to the high cost of managing the funds. At the very least, you should be willing to give $500,000 at the time your trust is established to justify the effort.
While you'll be given plenty of flexibility to get the terms you want when you set up your charity trust--even changing beneficiaries if you like--once you're in, you're in. You can't dissolve a trust. You can't change the amount of the annuity you've requested, either. This is the most compelling reason to apply due diligence when entering such a complicated financial arrangement. Consult with multiple financial experts and don't authorize a cent until you feel safe, comfortable and certain that your philanthropic spirit has been taken care of before and after your death.
References
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