By designating assets to non profit organizations, families can use wealth for social good. Estate planners explain charitable trusts, clarifying the difference between charitable remainder and lead trusts.
Charitable Trusts Are Irrevocable
Charitable trusts are established by placing assets in a trust with instructions for distribution to the designated organization. Phelps LaClair explains that charitable trusts are irrevocable: assets cannot be removed and beneficiaries cannot be changed. Be sure to carefully research the organization you name as a beneficiary and that you believe its mission and services make a difference. Once assets are placed in an irrevocable trust, they are protected from lawsuits and creditors. As Phelps LaClair further explains:
If you plan to leave assets to other beneficiaries and wish those distributions to take priority over your charitable donation, you will need to set up a charitable remainder trust (CRT). CRTs are also known as a type of “split-interest” trust that divides the trust assets into income interest and remainder interest. The income interest refers to any income earned by the assets in the trust since its creation. The beneficiaries receive the income yearly as a fixed dollar amount or as a percentage of the assets. The remainder interest is made up of the trust’s principal, which is the value of the assets themselves, including increases or decreases in value. The income interest goes to the non-charitable beneficiaries and the remainder interest goes to the charity.
Trustee and Trustee Bonds?
When creating a trust, the grantor names a trustee to administer the assets in accordance with the plans specified in the trust agreement. When choosing a trustee, families often designate a loved one or friend. An independent fiduciary is also an option. Keep in mind that the trustee role is not an honorary one. All trustees are fiduciaries: they are legally bound to the highest duty of care in executing their responsibilities. In fact, given the significant duties undertaken by trustees, the trust agreement may require procurement of a trustee bond.
A trustee bond is a type of fiduciary bond that protects the interests of the trust and beneficiaries by guaranteeing the faithful performance of a trustee in accordance with the law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. The bond can be printed or e-filed from anywhere. Trustee Bonds Here
Understanding Charitable Lead Trusts
When a family has the ability to make substantial contributions to a trust, charitable remainder trusts can really benefit a charitable organization over time. Otherwise, they might not generate much income. Phelps LaClair point out that sometimes a charitable lead trust might be best:
“If you would like to donate a specific portion of the trust’s income to the charity before any other distributions, then a charitable lead trust (CLT) is the right choice. A CLT is the direct opposite of a charitable remainder trust—the beneficiaries will receive any remaining funds in a CLT after distribution to the charity.”
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