When a person is creating an estate plan, they may want to support a cause that has been important to them during their lifetime. A charitable trust is established with the intent to donate the trust’s assets to a charitable organization of cause. Usually, the trust is set up to provide financial support to the charity or cause over a period of time.
Charitable trust process
In Maryland, there are certain requirements that the person must follow to create the trust. First, they will need to choose the charitable cause to support and then select a trustee to oversee administration of the trust. It is important to choose a responsible person as the trustee. The trustee can be an individual or a corporate entity.
Then, the next step is to draft the trust agreement. The trust agreement outlines the terms and conditions of the trust, its purpose and lists the beneficiaries. The trust must also be funded. This means that there are assets put into the trust’s name, which could range from cash, real estate or other types of assets.
The person who creates the trust may also need to register it with the state. Also, some charitable trusts may be eligible for tax-exempt status, which is determined by the Internal Revenue Service.
Types of trusts
There are two primary types of charitable trusts: charitable remainder trusts and charitable lead trusts.
With a charitable remainder trust, the person who creates the trust can continue to receive income from the trust for a period of time. Then, at the end of the trust term, if there are any remaining assets, those are donated to the charitable cause.
With a charitable lead trust, the trust pays the charitable organization for a period of time, then any remaining assets are distributed to the donor’s beneficiaries.