View random article

What Are Charitable Trusts?

A trust is a means of transferring property—whether it is tangible or intangible— or funds from one party to another. It is a legal tool that allows transition of ownership through a third party, who manages the estate until such time that the original owner wishes to pass on the property to another in accordance with the terms stipulated by the former. A type of trust that allows people to donate money or their estate to charity in order to obtain a tax break for themselves and their beneficiaries is referred to as charitable trusts.

A trust is created by a party called a trustor, donor, grantor, or settlor, and is managed by a party, called the trustee or fiduciary. The trustees have a duty to manage the trust for the beneficiaries, the recipients of the estate. Such fiduciaries are obligated to manage the estate in the best interests of the beneficiaries. The estate is legally referred to as the asset. Once a person creates a charitable trust, this trust is irrevocable and cannot be changed once it has been signed into effect. Thus, they lose legal control over their property.

Charitable trusts exist under the premise of estate planning, and are not meant to be created for those who generally donate intermittently or occasionally. Such trusts are created by benefactors who expect high taxes from their estate and wish to reduce such taxes for themselves and their beneficiaries. One such specific form of charitable trusts is a charitable lead trust.

Featured in Finance