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Charitable trusts: What are they?

October 30, 2020

To truly understand what a charitable trust in Texas is, we must first understand the definition of liquid assets. Liquid assets are assets that can easily be converted into cash in a short amount of time. A few examples of liquid assets include stocks, bonds, marketable securities, and yes, even cash itself. Liquid assets are what is needed to create a charitable trust in the first place. Donors may ask the charity to hold onto the assets for a specific amount of time (called an annuity.) However, this is only the beginning of a charitable trust. Read on to learn additional information on the components that make up a trust.

Remainder trusts

When a person chooses to place their assets into a charitable trust, they will ask for it to be stored for a certain period of time. When donors sit down for their estate planning meetings, the discussion of how long would usually come up. Some donors may want the assets there for only a couple of years, while others may choose to have them stored within the charity well after their deaths.

Lead trusts

Although both types of trust require that assets are transferred to a charity, the donor keeps total control of them within a lead trust. This also involves keeping a portion of the interests that build up over time. Lastly, a lead trust requires that all assets be returned to the owner after the trust has expired.

Why create a charitable trust?

Donors tend to create charitable trusts for more than just good intentions. The benefit of receiving a tax break is a huge incentive for people to create these types of things. For example, stocks tend to fluctuate often, but when you place them into a charitable trust, you are also receiving a federal income tax deduction.

No matter your reasons, charitable trusts are a win-win situation for everyone. However, it should be noted that you may need an attorney’s guidance to help you traverse the various legal hurdles.