Can You Name a Charity as Beneficiary in a Revocable Trust?

In a typical private revocable trust, the law requires definite, named beneficiaries in order to make the trust legally valid. However, other types of trusts, including charitable trusts and charitable remainder trusts, allow the settlor (the person making the trust) to name a charity as a beneficiary. Those with questions about setting up a specific trust should seek professional advice.

Revocable Trust

A revocable trust is created when one individual, a "settlor," legally transfers his property to a second individual, the "trustee." Unlike an irrevocable trust, in which the settlor theoretically gives up all rights to the property for good, the revocable trust can be altered during the settlor's lifetime (unless language in the trust instrument says otherwise). The trustee has the job of managing and prudently investing the property for the benefit of another person chosen by the settlor, known as the "beneficiary."

Definite Beneficiaries

Among numerous other legal requirements, a private trust must have definite beneficiaries. This means that the settlor must specifically name a person or a specific class of people who will receive the benefits of the trust property. If the settlor names a class of people and it's too big, making the class indefinite, a private trust may be ruled legally invalid because of the lack of a definite beneficiary.

Charitable Trusts

For the settlor who wants to name an indefinite class of people as beneficiaries, the law offers the charitable trust. Charitable trusts are actually required to have indefinite, rather than definite, beneficiaries. Unlike private trusts, which may face certain time limitations imposed by law, charitable trusts can theoretically continue indefinitely. However, the trust must be created for charitable purposes, meaning that while individuals may reap certain benefits from the trust, the real effect of the trust is to benefit society. If the group of beneficiaries is too small, some jurisdictions may rule that the trust is private, rather than charitable. Charitable trusts typically carry tax advantages for the settlor.

Split-Interest Trusts

If a settlor wishes to place his property in trust for the benefit of both definite and charitable beneficiaries, he has the option of creating a split-interest trust. One type is a charitable remainder trust. Typically, in this type of trust, the settlor can leave part of his property to definite beneficiaries, and dictate that whatever property is left over afterward goes to a designated charity. Conversely, in a charitable lead trust, the settlor chooses similar beneficiaries, but the charitable beneficiary receives a stream of income and the noncharitable beneficiaries receive their share afterward.

References

• "Wills, Trusts and Estates (Seventh Edition)"; Jesse Dukeminier, Robert H. Sitkoff, James M. Lindgren and Stanley M. Johanson; 2005
• USLegal: Split Interest Trust Law and Legal Definition
• Do It Yourself Estate Planning: Revocable Living Trust
• CharitableTrust.com: Charitable Lead Trust

Resources

• Nolo: "The Charitable Trust: Do Good and Get Tax Breaks"