Charitable Trusts Under the Law
A private express trust is established when the creator of a trust, known as the settlor, transfers money or property to a trustee. The trustee then makes distributions to a named beneficiary. A charitable trust is established to benefit a charity or charitable purpose while also providing the settlor with valuable tax advantages. Charitable trusts are created in the same manner as private express trusts, with several key exceptions: the trust must be created for a charitable purpose, the beneficiaries to the trust must be indefinite, and the trust may be perpetual.
Charitable Purpose
All charitable trusts must be created to benefit a charitable purpose. A charitable purpose is a purpose that benefits the public in some way. Charitable purposes include, but are not limited to: furthering education, scientific research, religion, community development, the environment and the arts. If the settlor's charitable purpose is uncertain or impracticable, the court will apply the doctrine of cy pres. Cy pres, or "as near as possible," allows a court to select an alternative charitable purpose that satisfies the general charitable intent of the settlor.
Indefinite Beneficiaries
A private express trust requires a definite and ascertainable beneficiary or group of beneficiaries. The beneficiary of a charitable trust, however, is not any one individual or group, but the public at large. Therefore, an individual beneficiary of a charitable trust has no legal standing to enforce the terms of the trust. Charitable trusts are enforced by the Attorney General of the state in which the trust is located.
Duration
The common law Rule Against Perpetuities, followed by a number of states, limits the duration of private express trusts. Specifically, the trust must terminate twenty-one years after the death of a person living at the time the trust was established. Charitable trusts, however, are not subject to the Rule Against Perpetuities and may continue as long as the charitable purpose exists.
Charitable Remainder Trusts
A Charitable Remainder Trust (CRT), also known as a Charitable Uni-Trust, serves as a popular estate planning tool. By making distributions to two sets of beneficiaries, a CRT benefits the charity of the settlor's choice, while also ensuring that the settlor or the settlor's family is adequately provided for. An income beneficiary (typically the settlor or a family member) receives periodic income payments from the trust. A named charity then receives the principal of the trust after the settlor's death. CRTs are not subject to capital gains or estate taxes. Additionally, charitable trusts may qualify the settlor for an income tax deduction if the charity meets certain requirements set forth by the IRS.
Charitable Lead Trusts
A Charitable Lead Trust (CLT) provides the settlor with the same tax benefits as a CRT. Similar to a CRT, assets are placed in the trust and a periodic payout rate is established. Instead of providing income to the settlor, however, the CLT makes income payments to a charity. These income payments continue for a designated period, or until the settlor's death. The remainder of the trust is then returned to the settlor's heirs. The CLT is useful for people who wish to support their favorite charity, while ultimately providing for family members.
