Charitable Living Trusts
A charitable living trust is a legal instrument created to benefit a group of nonspecific individuals. An individual, the "settlor," places assets into the trust for a charitable purpose. Many states grant tax advantages to charitable trusts. The law governing a charitable living trust may differ by jurisdiction; those with questions about a specific charitable living trust should seek local legal advice.
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Living Trusts
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A trust is a legal instrument, typically used in estate planning. The trust moves assets out of the settlor's control and places them in the hands of another individual (the trustee). Depending on the language of the trust, the trustee may have great latitude in how he manages the assets, or may need to manage those assets according to the specific directions in the trust. Either way, the trustee is legally obligated to act for the good of another individual named in the trust, the beneficiary. Living trusts typically remain revocable until the death of the settlor.
Charitable Purposes
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A charitable trust must have a charitable purpose, meaning that the trust is designed to benefit the public. A trust need not benefit every member of society to be charitable; for instance, a settlor may establish a charitable trust for victims of a hurricane or cancer sufferers. Charitable trusts may continue indefinitely, unless the trust instrument stipulates otherwise.
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Indefinite Beneficiaries
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Trusts may have one beneficiary, multiple beneficiaries, or in the case of charitable trusts, a group of beneficiaries. In order to demonstrate this charitable purpose, a trust must designate "indefinite" beneficiaries. The trust language cannot designate specific individuals to receive the benefits of the trust; it must be a group with certain traits. While the beneficiary class of a charitable trust may be fairly small, it cannot be such a narrowly defined class that the trust clearly intends to benefit only a few individuals chosen by the settlor. Whether a beneficiary class is sufficiently indefinite to demonstrate a charitable purpose is typically a question of fact for a court.
The Res
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All trusts, including charitable living trusts, require an immediate transfer of property, known as the "res," into the trust. If the settlor designates property for the trust that is nonexistent or even unavailable at the time of trust creation, the trust lacks a res and it will not legally operate.
Cy Pres
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Some jurisdictions follow the "cy pres" doctrine, which allows a court to alter the trust as necessary to make sure that the operation of the trust effectuates the settlor's general intent. For instance, if a settlor creates a charitable living trust to create a school, but funds prove insufficient, a court may choose to put the trust assets into some similar educational purpose on a less grand scale.
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References
Resources
- Photo Credit signing a contract image by William Berry from Fotolia.com
