Charitable Trust

What Is A Charitable Trust Fund?

Most people who have achieved and enjoyed considerable financial success in their lives are well aware of the well know proverb "You can't take it with you". As far back as 1969, recognizing that fact the US congress introduced legislation allowing for the creation of a new form of charitable trust fund. This charitable trust allows taxpayers in the United States to reduce estate taxes, almost totally eliminate the constitutional demand to pay capital gains tax, and allow for reduction in income tax paid during a fiscal year. This legislation virtually allowed channeling of taxes before deduction by the Internal Revenue Services into recognized charities and foundations. These charities could be either situated in the US or overseas.

One of the most important things that people should realize when setting up a charitable trust fund is that this money can never be returned. The money, as soon as it leaves the donators bank account, becomes the property of the trust. The trustee (or trustees) controls the trust fund and how the funds in it are distributed. Obviously the donator will have all the say as to where the funds are distributed, and will enjoy all the accolades that they will receive by their charitable acts. In some cases, the donators may be eligible to receive an annual stipend from the fund. Once the named beneficiaries pass away then all the proceeds from the fund go to the named charities only.

Charitable trust funds especially lend themselves to individuals who have earned their fortune in the real estate market. Any profits on property sold are taxable at around 20%. If however the seller places all the income and profits into a charitable trust, then there will be no capital gains tax to be paid on the profits.

Many charitable trusts are financed this way, and also from selling stocks and shares where the profits have been generated over decades.

The obvious attraction that investing in a charitable trust is for people who are planning their retirement. They know firstly that the money they earned during their life time will partially go towards funding them in comfort during their golden years. When they pass on, they with the knowledge that they may have left some physical evidence on the planet that they have been here.

Any money held in trust through a charitable trust is regarded by the IRS as being outside of the donator's estate, and there are very large overall tax benefits to be gained. This can depend on the overall value of the donator's estate. One of the drawbacks of setting up a charitable trust is that the donor's direct descendents cannot benefit from any funds donated to charitable trusts. So in order to be remembered fondly by their loved ones as well as the benefactors of the charitable trust, the donors will have to plan their estate very carefully. One of the most important keys to success is the proper and effective administration of the charitable trust. While the donors can have a fair say in its administration during their life time, they should be able to go to their rest knowing that the fund is in safe and trusted hands. Generally trustees charge an annual flat fee, which can be sufficiently high to place this option out of may people's hands. Bearing these facts in mind, setting up a charitable trust or trusts is an excellent means for individuals to reduce their income tax outlays and enjoy seeing the fruits of their lives labors displayed in a more tangible fashion.