Whether you have a little or a lot to gift to your favorite organization or cause, you can arrange to do so via either a will or a trust. Though charitable giving is possible via both wills and trusts, estate planning experts point out trusts offer more options in terms of how and when the distributions are made.
Disadvantages of Gifts Through Wills
If you want to leave a charitable gift as part of your legacy, you may have special conditions in terms of how the money is used, timing and so on. If these details matter to you, a will is generally not the best choice, as the experts at Frank & Kraft point out:
Gifts made in a Will do not allow you to retain much control over how the gift is used by the beneficiary. Consider a gift made in your Will to be a “no strings attached” gift. That means that gifting in your Will is not an ideal option if you want to have some input or control regarding how the gift is used by the recipient. In addition, if you wish to make any changes to the gifts you make in your Will it is usually necessary to revoke your Will and execute a new one which can be cumbersome if you add or delete charities with any regularity. Finally, you may miss out on any potential tax benefits you might get from philanthropic gifts if they are made in your Will…because the assets are still part of your estate at the time of your death….
Consider a Trust and Appoint A Trustee
When you place assets in a trust for distribution to a charity, you can specify the terms and timing in the trust agreement. Estate lawyers explain that doing so may ultimately enable you to more deeply accomplish your specific goals for social good:
A trust can offer several advantages over a Will for philanthropic gifting. For example, a trust allows you to retain a significant amount of control over how the recipient uses the assets you gift through the trust terms you create as the Settlor of the trust. In addition, when you create a trust, you choose a Trustee who is responsible for managing the trust and protecting the trust assets. Appointing the right Trustee provides additional reassurance that the assets you gift will continue to grow in value and continue to further your philanthropic goals.
An important part of establishing a trust is the designation of a trustee who will carry out your plan. When working with a lawyer to establish a trust, it’s important to incorporate as much detail as possible about your philanthropic goals and the terms of distributions to designated charities in the trust agreement. Additionally, be diligent about selecting and preparing a trustee to oversee it. You can learn more about the general duties of trustees right here. Though your trustee can be a family member or friend, depending on the complexities and assets involved, it might be appropriate to designate a professional trustee. Frank & Kraft offer this perspective:
When you create a trust, you can appoint anyone you choose to be the Trustee. Given the complex nature of philanthropic trusts, however, you may wish to consider appointing a professional Trustee. One of the most common mistakes settlors make is appointing a family member or close friend as their Trustee without considering whether the individual is well suited for the position. Given the duties and responsibilities of a Trustee, you should appoint someone who has more than a rudimentary understanding of financial and legal concepts. This is often even more important when charitable beneficiaries are involved. You may wish to consider appointing a professional Trustee.
No matter who you choose as a trustee, keep in mind that every trustee has a fiduciary responsibility to exercise reasonable care and skill in managing the assets of the trust. Accordingly, the trust agreement may require a trustee bond, which is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state laws. Trustee bonds can be obtained quickly and easily—in just a few clicks—from Colonial Surety.
Good To Know: Charitable Lead and Remainder Trusts
Among the ways to arrange for charitable giving are charitable lead and remainder trusts. The difference, as attorneys explain, relates to the sequencing in which a designated charitable organization receives assets from the trust:
A charitable lead trust is structured so that assets from the trust are distributed to at least one charitable beneficiary for a specified period first. At the end of that time, the assets remaining in the trust are distributed to at least one non-charitable beneficiary….Imagine that you established a charitable lead trust and transferred $5 million into the trust. The terms might direct distributions in the amount of $250,000 to be made to your chosen charity each year for ten years. The terms might further dictate that at the end of that 10-year period the assets remaining in the trust are to be distributed to your adult children.
A charitable remainder trust works just like a charitable lead trust, but in reverse. Trust assets are first distributed to at least one non-charitable beneficiary for a specified period with the remainder assets being distributed to at least one charitable beneficiary at the end of the period.
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