How to get started with a charitable trust

August 30, 2017
By: John J. Pembroke

If you want to protect your heirs from incurring large capital gains taxes on an asset that has increased significantly in value — or if you want to sell an asset and benefit from the profits without getting hit with the taxes — a charitable trust could be the right choice for your needs.

With a charitable trust, you transfer ownership of specific property to the trust, then the trust liquidates the property. As the beneficiary of the trust, you will receive regular distributions from the trust. Then, when you die, the remainder of the trust will go to the charity of your choice.

When setting up a charitable remainder trust, the first step involves earmarking the assets that you’ll put into the trust. You might put business interests, real estate, stock, cash, art or other property of value into the trust. Then, you will pair the trust with a bank or financial management firm. The trust documentation will include details regarding the way the payments will be made, how they are calculated and how frequently the payments will occur. You will also name the charity that will benefit from the remainder of the trust. That charity has to be approved by the Internal Revenue Services (IRS).

It’s not necessarily simple or straightforward to create a charitable remainder trust. If the appropriate rules are not followed, then the trust could be rendered invalid and you will be forced to dismantle it and lose the money you spent to create it. As such, Illinois residents are encouraged to work with an experienced and knowledgeable professional when creating their charitable remainder trusts.

Source: FindLaw, “Charitable Trust,” accessed Aug. 22, 2017