A charitable trust allows you to distribute money to charity over a period of years. You establish the trust, and trust administrators invest your initial donation to earn money for the trust. Proceeds from the investments, as well as money you deposit into the trust, are paid to one or more charities during the life of the trust. A charitable trust provides you with some tax breaks, including a tax deduction for your donation; in some cases, you can avoid capital gains tax on property or stocks you donate to the trust. Setting up a charity trust is an easy process.
Step 1
Determine the amount of money you'll use to establish the trust. Trusts aren't practical for a few hundred of even a few thousand dollars, since you'll pay fees to the fund administrator. Investment companies that administer charitable funds require minimum investments of between $5,000 and $10,000.
Step 2
Contact an investment company of your choice and inform it that you want to establish a charitable trust. You can establish a trust in which all the money goes to a charity or charities, or you can open a charitable remainder trust. According to the legal website, NOLO.com, in a charitable remainder trust, you receive a fixed amount or a percentage of the trust assets, in payment each year. The remainder of the money belongs to the charity you designate. The investment company will assist you in filling out the appropriate legal paperwork.
Step 3
Name your trust. For example, you can name it after the charity you're donating to or use your name or a family name. You'll be credited for your donation in the charity's literature with the name of your trust: "This program was made possible by a grant from the John Smith Family Trust."
Step 4
Make a donation of property, stock or cash to fund the trust. The trust manager will sell the stock or property or invest the cash to generate income. Depending on the type of trust you establish, you can award grants to charities of your choice at your discretion, or you can designate a trust manager or single charity to use the money as it sees fit.
Tips and Warnings
- You have the option with many trusts of adding to the trust over time.
- Donations to a charitable trust are irrevocable, meaning once you make the donation, you can't get the money back. No matter when the trust distributes money to the charity, you receive a tax donation only in the year in which you fund the trust.
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