Many people in California, when creating an estate plan, have the desire to leave money to a charity. One effective way is by establishing a charitable trust, which is funded by a donor and leaves a portion of assets to a charity and could also leave some to heirs, depending on how the trust is set up. There are benefits and drawbacks for different types of trusts that will depend on each person’s circumstances and goals.
There are two main categories of charitable trusts. First, a charitable remainder trust essentially puts assets into a trust that benefit the donor or designated beneficiaries for a period of time. After that time ends, any leftover assets go to a specified charity. Second, a charitable lead trust does the opposite. The charity benefits first, and then designated beneficiaries do after the time period is over.
These two types of trusts may be set up either as a unitrust or annuity, which means the income distribution is calculated differently. For a unitrust, the calculation is based on the past year and is subject to change, depending on the trust’s value, while an annuity is based on the value of the trust when it was established. When creating the trust, donors choose between an annuity or unitrust based on interest rates at the time. The benefits of each type of trust depend on the personal financial circumstances of each donor. However, in both scenarios, most people have the benefit of a tax break that can ultimately mean more income in the long run, for the donor, heirs or charity, depending on the provisions of the trust.
While some donors have traditional heirs, they may want at least a portion of their assets to help a cause they believe in. Charitable trusts are often the best means to accomplish both aims. Families in California interested in this possibility may want to work with an experienced estate planning attorney, who can walk them through their available options.