Establishing a Charitable Trust as Part of Your Estate Plan

Trusts can be used as a useful tool in your estate plan to accomplish a variety of goals. One example is establishing a split-interest charitable trust. These charitable trusts are an irrevocable trust established for a charitable purpose of your choosing, while at the same time featuring a benefit to a non-charitable trust beneficiary. In addition to tax benefits received under federal law, charitable trusts offer the person establishing the trust, also known as the “settlor,” a controlled process to effectuate their gift to a selected charity. Examples of charitable trusts include a charitable remainder annuity trust (CRAT), charitable remainder unitrust (CRUT), and a charitable lead trust (CLT).

CRATs, CRUTs, AND CLTs

Establishing a charitable remainder annuity trust includes the transfer of property to a trust that first distributes a fixed annuitized portion of the trust property to non-charitable trust beneficiaries, followed by a distribution of the remainder to the tax-exempt charity selected by the settlor. Similar to the charitable remainder annuity trust, a charitable remainder unitrust also includes the transfer of property to a trust that first distributes an annuitized portion of the trust property to non-charitable trust beneficiaries, followed by a distribution of the remainder to the tax-exempt trust beneficiary; however, the amount of the annuity fluctuates with the value of the trust assets. A charitable lead trust differs from the charitable remainder annuity trust and charitable remainder unitrust in that the settlor will designate that the charitable beneficiary will first received a distribution of trust assets at least annually for a set period of time, after which the non-charitable trust beneficiary will receive the remainder of trust property. Each of these three split-interest charitable trusts offer dual benefit to a designated charitable purpose and the settlor’s non-charitable trust beneficiary.

New York Requirements for Charitable Trusts

After deciding to include a charitable trust in your estate plan, an estate planning attorney can help you create the trust vehicle to accomplish your goals. Charitable trusts established under New York law must adhere to several requirements and ongoing administration. The creation of a charitable trust under New York law is effectuated like other types of trusts where the settlor transfers property to a trustee for the benefit of a charity. Within six months of the settlement of a charitable trust, the trustee must register the trust with the State of New York Attorney General by completing the appropriate forms and submitting a copy of the trust document. Depending on the type and size of charitable trust established by the settlor, annual financial reports and fees may have to be submitted to the state. Charitable trusts are terminated upon their terms, or as a result of an action by an interested party or the State of New York on the basis that the ongoing administration of the trust assets of $100,000 or less is not beneficial.