Redding, California, Law Blog

The advantages of charitable trusts

On Behalf of | Dec 12, 2023 | ESTATE PLANNING - Trusts

California residents who are making their estate plans might want to consider using one or more charitable trusts as a component. This can be particularly useful for individuals whose estate is large enough that they are looking for ways to reduce estate tax, but charitable trusts have other functions as well. Essentially, they allow individuals to distribute money to both heirs and to charitable causes.

Types of charitable trusts

A charitable lead trust and charitable remainder trust are two main types of charitable trusts that may be used as part of an estate plan. A CLT makes annual distributions to one or more charities. At the end of the term of the trust, the remaining assets are distributed to noncharitable beneficiaries, usually family or other loved ones. With a CRT, it is the noncharitable beneficiaries who receive distributions, and the rest of the assets go to the charity at the end of the trust term. There are guidelines about what percentage of either trust’s value must be distributed and what kind of tax advantages are available with each type of trust.

Combining trusts

The person who creates the trust is known as the grantor, and these trusts can be created while the grantor is still alive or on the death of the grantor. It is also possible to combine them in some situations, with assets divided between the two and ultimately providing more income for both charitable and noncharitable beneficiaries.

There are a number of different strategies individuals can pursue using charitable trusts depending on their particular situation and goals. One of the greatest advantages of charitable trusts beyond the financial benefits is that they provide an opportunity for people to establish a long-lasting legacy that reflects their values, an important element of an estate plan for many individuals.