How charitable trusts can help you reach your goals

Estate Planning

February 6, 2023

They are one way to take a balanced approach.

Charitable trusts are one way to balance your philanthropic wishes with the security of a reliable income stream. They can also provide a single strategy to help you achieve several goals simultaneously—benefiting yourself, your family, and a charity.

“Many people are very charitably inclined,” says Patrick E. Beaudry, a senior vice president at Truist Wealth. “They want to make sure that their money does good things. But one thing that sometimes stops them from doing that is they have competing goals. They don’t recognize that they can use charitable trusts to tackle more than one goal.”

Choosing the right path

Beaudry says there are two main types of charitable trusts: charitable lead trusts and charitable remainder trusts. Their primary differences are who receives the income stream during the life of the trust and who receives the remaining assets when the trust ends.

Income can be generated from the sale of the assets you put into the trust or through money derived from owning the assets, such as dividends.

Important advice to consider

They are for people with a strong charitable desire. Charitable trusts offer tax benefits, but they aren’t designed primarily as a tax planning tool. Instead, they’re a charitable giving strategy, Beaudry says. The IRS has rules governing the percentage of trust assets that must be given to charity. You can’t receive the trust’s tax benefits without really donating money to a charity.

How you fund them matters. Many types of assets can be put into a trust—cash, real estate, stocks, business interests, and even cryptocurrency, says Nathan Duncan, a senior vice president and advice and planning strategist with Truist Wealth. But you should be thoughtful about how you fund a charitable trust because of the tax implications, Duncan says. For example, you can use charitable trusts to sell highly appreciated assets such as stocks or real estate while preserving their full value (rather than having the value reduced by capital gains taxes).

They’re irrevocable (but you can change the charity). Assets that go into a charitable trust can’t be taken back. But, for example, you can set up a charitable trust to benefit one charity for the next 20 years, and then in year seven, redirect future money to a different charity, Duncan says. You can even change the charity multiple times. But Duncan points to one key stipulation: The new qualifying charity must be the same type (public vs. private) as the initial charity.

Charitable trusts aren’t just for the super wealthy. Once clients understand how these trusts can help with multiple goals, Beaudry says, “It really opens up a dialogue where they can say, ‘I don’t need to be ultra-wealthy to set up these trusts. I can set this up at a reasonable amount and make sure that what I care about is taken care of.’”

Getting advice is essential. There are many different approaches and nuances when determining the right charitable trust, Duncan says. For example, with a unitrust, you can add more money to the trust—but you can’t do that with an annuity trust. The assets in the trust can also be invested, a key consideration to help ensure the trust can make its required payments, Duncan says. Your wealth advisor, along with an accountant and tax expert, can help you determine the best approach.

Your advisor can also help you think about a charitable trust in the context of what you want to accomplish with your overall estate plan.

“Charitable trusts are really good tools, but the tools aren’t the important thing,” Beaudry says. “The result is what we’re really after, and we use the tools to get to the results.”

Ready to explore the benefits of adding a charitable trust to your estate plan?

Talk to a Truist Wealth advisor.