Charitable Family Trusts

A charitable family trust is a trust meant to lower the donor's total taxable estate by leaving assets in the trust that benefits the charitable family trust upon death of the donor. There are two main charitable trusts including: charitable remainder trusts; and pooled income funds.

Charitable Remainder Trusts

A charitable remainder trust can be in the form of a charitable remainder annuity trust (CRAT). The "CRAT" provides a fixed annuity to the donor between five percent and 50 percent of the property contained in the body of the trust. The annuity pays at least once per year to the donor. The annuity must be a life annuity until death or an annuity certain for no more than twenty years. The remainder interest is paid to charities of choice. Additionally, a trustee can distribute payments to income beneficiaries as officiated by the so-called "sprinkling provision".

Another charitable family trust can be in the form of a charitable remainder unitrust (CRUT). The "CRUT" is more flexible than a CRAT. The annual annuity rules apply to CRUTs exactly as they apply to CRATs. As opposed to the CRAT, CRUT annuity payments can be limited to the income that the trust earns. Also contrary to the CRAT, the CRUT may pay additional contributions after the trust has been established. The sprinkling provision common with other charitable remainder trusts applies the same way for CRUTs.

Pooled Income Funds

Pooled income funds are like mutual funds for charity trusts. Donor contributions are pooled and in return they receive an ownership allocated percentage of the income for the life of the trust. These pooled funds are not allowed to invest in tax exempt securities such as certain municipal bonds. Just like charitable remainder trusts the donor receives an income tax deduction for the remainder interest in the trust. These pooled income funds are advantageous for small donors because they can gift remainder interests for charities and properties without having to create an individual annuity trust. Also, just like mutual funds, the pooled income funds receive the benefits of diversification and protection with less of the costs.

Then there are charitable lead trusts. These are created to lower the estate's taxable estate. The beneficiaries will most likely have a lower gift tax to pay. The tax deduction will be equal to the annual charitable gifting the trust makes.