Can a Charity Be a Beneficiary?

Over the years, trusts have evolved to the point where it is now common to find at least one trust agreement in even a simple estate plan. One reason for the popularity of trusts is the numerous and diverse estate planning goals that can be accomplished using a trust. If philanthropy is part of your everyday life, for example, you may wish to consider using a trust to continue that charitable gifting in your estate plan. A Grand Forks trust attorney at German Law Group explains how to make a charity the beneficiary of a living trust.

Your Last Will and Testament May Not Be Ideal for Charitable Gifts

When most people think about gifting in their estate plan, they envision gifts made in their Last Will and Testament at the time of death. While you certainly can make charitable gifts in your Will, there are several reasons why making charitable gifts in your Will is not the best option. To begin with, using your Will to make charitable gifts means you will almost surely miss out on tax benefits that would otherwise be available when making charitable gifts. In addition, when you make a direct gift in your Will, you lose all control over how that gift is used once the transfer is complete. Finally, gifts made using your Will are not made until after your death. If philanthropy is part of your daily life now, a trust is a much better vehicle for distributing those gifts because it can be used now and after you are gone.

Trust Basics

A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a Maker or Grantor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries.  All trusts are first divided into one of two categories – testamentary or inter vivos – the latter of which is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Settlor, and which is typically activated by a provision in the Settlor’s Will.  A living trust is a trust that takes effect as soon as all the legalities of creation are in place. Living trusts are then further divided into revocable and irrevocable living trusts.

Charitable Beneficiaries

There are several ways in which a charity can be included as a beneficiary of a living trust. You can create a trust that is devoted entirely to charitable gifting or one that includes both charitable and non-charitable beneficiaries, known as “split-interest” trusts.  Specifically, charitable lead trusts (CLT) and charitable remainder trusts (CRT) are specialized trusts that allow you to gift to both charitable and non-charitable beneficiaries within the same trust.

A CLT first makes distributions to a charitable beneficiary for a specific period or for the life of a person. At the end of the designated time, the remaining assets, plus any interest that has accrued, are distributed to the non-charitable beneficiary. For example, you might decide to make an annual gift to a favorite charity for ten years, after which the remaining assets in the trust will be distributed to your children. A charitable remainder trust (CRT) works in reverse with the non-charitable beneficiary receiving distributions first and the remainder (plus interest) going to the charitable beneficiary. The non-charitable beneficiary will receive payouts at least annually for your lifetime, the life of another person, or for a set number of years. With this type of trust, you might provide annual distributions to your adult child for his/her lifetime with the remaining trust assets being distributed to a charity after your child’s death.

Along with allowing you to continue your charitable gifting long after you are gone, including a charity as a beneficiary of a living trust can provide important tax advantages to you while you are still alive.

Contact a Grand Forks Trust Attorney

Please join us for an upcoming FREE seminar. If you have additional questions or concerns about making a charity a beneficiary of a trust, contact a Grand Forks trust attorney at German Law Group by calling 701-738-0060 to schedule an appointment.