What Is a Charitable Trust?
Charitable trusts are gifts in support of a certain charity. The purpose of the trust is to benefit a specific charity, rather than a specific beneficiary. The trust serves a charitable purpose, such as relieving poverty or advancing education. However, it can also provide potential tax benefits for the donor.
Types of Charitable Trusts
There are many different kinds of trusts that give you different options for managing your estate. Some of the most common kinds of charitable trusts include:
- Charitable lead trust — A charitable lead trust distributes a portion of its income to the charity or charities of your choice over a set term. The remainder then goes to the beneficiary of your choice. You receive a tax dedication equal to the value of your donation for each year you donate.
- Charitable remainder trust — A charitable remainder trust works in the opposite way of a charitable lead trust. Set portions of the trust’s income goes to the beneficiaries of your choice. The charity then receives the remainder of the trust.
- Charitable remainder annuity trust — With this type of trust, your beneficiaries receive an annuity or fixed income amount each year. This provides a steady income stream to the beneficiary. The annuity payment must remain the same for the annuity’s term and must be at least 5 percent. The percentage does not vary regardless of how the trust performs. Additional contributions are not permitted within this type o trust. The remainder of the trust is paid to the charity after you pass away.
- Charitable remainder unitrust — A charitable remainder unitrust provides a fixed percentage of the trust’s assets each year. The value of the trust is appraised annually, and the beneficiaries’ distribution is based on a set percentage of the current value of the trust. There is more flexibility with this type of trust than with a charitable remainder annuity trust since you can make additional contributions to the trust. Additionally, the beneficiaries’ distribution does vary with the performance of the trust. However, beneficiaries must receive at least 5 percent of the trust’s value each year. The remainder of the trust is paid to the charitable organization.
How to Set Up a Charitable Trust in New York
The first step in setting up a charitable trust is ensuring that whatever organization you’re donating to is a registered charity with the Internal Revenue Service (IRS). One of our knowledgeable estate planning attorneys can help create a trust that is best suited to your needs.
Once the charitable trust has been established, the trustee must register the trust with the Attorney General for the State of New York. The AG’s office oversees all charitable trusts in New York. After the trust has been registered, it may be necessary to submit annual financial reports or pay certain fees to the state, depending on the size and type of trust.
Charitable trusts are terminated once they’ve reached their defined terms. Trusts with assets of $100,000 or less can also be terminated by a legal action from an interested party or the state if the party bringing the action can show that the cost and effort of administering the trust are not beneficial.
How Our New York Trust Attorneys Can Help
Donating to charitable organizations is a noble goal, but it will be nothing more than a goal without the creation and maintenance of a charitable trust. A New York trust attorney from Chaves Perlowitz Luftig, LLP, can help you with your charitable trust by:
- Explaining the different types of charitable trusts in detail
- Helping you create the trust that best suits your objectives
- Transferring your assets to fund the trust
- Assisting the trustee with the registration of the trust with the proper authorities
- Answering any questions you have and helping with any other details throughout the process
If you want to know more about charitable trusts in New York and what Chaves Perlowitz Luftig, LLP can do for you, contact our office today for a confidential consultation.
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