Can You Set Up a Trust for Charitable Purposes?

Yes, you can set up a trust specifically for charitable giving. In the U.S., the two main charitable trust structures are the Charitable Remainder Trust and the Charitable Lead Trust, both of which combine philanthropy with estate and tax planning.

What It Is

A charitable trust is an irrevocable legal arrangement that transfers assets to a trust for the benefit of a qualifying charitable organization while also providing financial benefits to the person who establishes it. Once you fund it, the assets belong to the trust rather than to you personally, which is exactly why the tax advantages exist.

This is what makes a charitable trust different from writing a simple check to a nonprofit. A direct donation is immediate and final, but a charitable trust can provide income for years, reduce taxes, and still deliver assets to a charity at the end of the trust term.

Every charitable trust has three moving parts. There is the donor who creates and funds it, the trustee who manages the assets, and the charitable organization that receives either the income stream or the remainder interest, depending on the trust type.

In the United States, the charity named in the trust should be a qualified charitable organization, which usually means a 501(c)(3) organization recognized by the IRS. That point matters because the tax treatment depends on the charitable beneficiary being properly qualified.

The Two Trust Types

The first major structure is the Charitable Remainder Trust, usually called a CRT. In a CRT, you transfer assets into the trust, the trust pays income to you or another named beneficiary for a term of years or for life, and whatever remains at the end goes to the charity you named.

This structure is popular because it can combine charitable giving with a lifetime income. It also gives the donor an immediate partial charitable income tax deduction based on the present value of the charity’s expected future income.

There are two common versions of a CRT. A Charitable Remainder Annuity Trust, or CRAT, pays a fixed dollar amount every year. In contrast, a Charitable Remainder Unitrust, or CRUT, pays a fixed percentage of the trust’s value recalculated each year so that the payout can rise or fall with investment performance.

The second main structure is the Charitable Lead Trust, or CLT. A CLT works in the opposite direction: the charity receives payments for a set number of years or for a specified life, and when that term ends, the remaining assets pass to non-charitable beneficiaries, such as children or grandchildren.

That is why a CLT is often described as the inverse of a CRT. A CRT is usually best for someone who wants income first and charity later, while a CLT is usually best for someone who wants charity first and family wealth transfer later.

A CLT can also be set up in annuity form or unitrust form. In an annuity version, the charity receives a fixed amount each year. In contrast, in a unitrust version, the charity receives a fixed percentage of the trust assets each year, with the dollar amount varying over time.

Both CRTs and CLTs are irrevocable once funded. That means the decision should be made carefully, because the donor cannot simply take the assets back later if circumstances change.

Read: Can a Living Trust Be Contested?

Who Should Consider One

A charitable trust is especially useful for people who hold appreciated assets. If you own stock, real estate, or even a business interest that has grown sharply in value, a charitable trust can be much more efficient than selling the asset outright and then donating cash.

This is one reason charitable trusts appear in estate plans for retirees and long-time investors. Someone with stock purchased decades ago at a very low cost basis can transfer that asset to a CRT, let the trust sell it, and potentially avoid the immediate capital gains hit that would apply if the person sold it personally.

A CRT also fits people who want income and philanthropy at the same time. If you want to support a university, hospital, church, or public charity and also want income during retirement, the CRT is the structure for that combination.

A CLT tends to fit a different profile. It is often used by families whose goal is to transfer wealth to children or grandchildren while lowering gift and estate tax exposure, with the charity receiving the income stream during the trust term.

That does not mean charitable trusts are only for the ultra-wealthy. They are advanced tools, but the practical threshold is really whether you have assets large enough or appreciated enough that the tax and planning benefits justify the legal and administrative work.

Tax and Planning

Tax benefits are among the biggest reasons people use charitable trusts. When you fund one, the IRS can allow a charitable deduction based on the present value of the charitable interest, which is calculated using IRS assumptions, the trust term, and the payout structure.

For a CRT, the deduction is based on the value the charity is expected to receive at the end. For a CLT, the deduction is tied to the charitable income stream paid during the trust term, though the exact treatment depends on whether the CLT is structured as a grantor or non-grantor trust.

Capital gains treatment is another major advantage, especially with appreciated assets. If you personally sell a low-basis stock position, you usually trigger capital gains tax right away. Still, if that asset is transferred into a CRT first, the trust can sell it and reinvest the proceeds without the same immediate tax event hitting you personally at the moment of sale.

Estate tax planning is also part of the picture. Assets transferred into a charitable trust are removed from your taxable estate, which can reduce estate tax exposure for larger estates.

The CLT is especially powerful in family wealth transfer planning. Fidelity notes that CLTs are often used for estate or gift tax planning because the trust can support charity during the term and then pass the remaining assets to heirs, thereby minimizing or even eliminating transfer taxes, depending on the trust’s structure.

That said, charitable trusts are not a free lunch. A CLT is not tax-exempt in the same way a CRT often gets discussed in planning conversations, and trust income can still be taxed depending on the structure, which is why legal and tax drafting matters so much.

Read: What Happens If You Die Without a Will or Trust?

What You Can Put In

A charitable trust can be funded with more than cash. Publicly traded stock is one of the most common funding assets because the tax advantages are often strongest there. Still, real estate, closely held business interests, bonds, and other complex assets can also be used in the right structure.

Appreciated assets are usually the most tax-efficient funding option. That includes a stock position that has grown many times over or real estate that would otherwise create a large capital gains bill on sale.

Retirement accounts are usually a less attractive choice for funding a charitable trust during life compared with appreciated taxable assets. In practice, those accounts are more often used in direct charitable beneficiary planning rather than as the first asset to move into a CRT.

The right asset matters because the trust has to function over time, not just at setup. Fidelity notes that some contributed assets may need to be sold or paired with cash to ensure the trust has sufficient liquidity to make its required payments during the trust term.

Read: How Much Does It Cost to Create a Will and Trust?

Trust Vs Other Giving Tools

A charitable trust is not the only way to give. For many people, the real question is whether a charitable trust is better than a donor-advised fund, a private foundation, or a simple charitable bequest in a will.

A donor-advised fund is usually much simpler and cheaper to establish than a charitable trust or private foundation. The Community Foundation for Northern Virginia comparison shows that a donor-advised fund can often be opened with one signed document, has no separate annual tax return for the donor, and has no minimum annual payout requirement.

A private foundation offers the most control, but it is much more administratively intensive. Private foundations must apply for tax-exempt status, file a public Form 990-PF, and generally must distribute at least 5% of average asset value each year.

A charitable trust sits in the middle. It is more complex than a donor-advised fund, but it can do something a DAF cannot, especially in the case of a CRT, which can provide income to the donor or another beneficiary during the trust term.

A simple charitable bequest in a will is the easiest route of all. It leaves money or property to a charity at death. Still, it does not create lifetime income or the same kind of capital gains planning opportunity that a charitable trust can offer.

So the choice comes down to your goal. If you want simple giving, a bequest or DAF may be enough. If you want lifetime income, estate reduction, or structured family wealth transfer with charity involved, a charitable trust becomes much more relevant.

How To Set One Up

Setting up a charitable trust starts with clarity on the goal. First, decide whether the main purpose is donor income, family wealth transfer, or pure charitable impact, because that determines whether a CRT or a CLT makes more sense.

From there, you identify the asset you want to contribute and the charity or charities you want to benefit. The charity should be a qualified organization, and the asset should be one that actually suits the trust’s long-term payout obligations.

The next step is legal drafting. A charitable trust has to be prepared with IRS-compliant payout terms and technical trust language, so this is not a DIY document for most people. Fidelity explicitly notes that charitable trusts are complicated and subject to specific IRS rules, which is why legal and tax advisors should be involved.

Once the trust document is signed, the trust is still not truly working until it is funded. The asset must be retitled or transferred into the trust’s name, as an unfunded trust does not achieve the planning result.

After funding, the trustee manages the asset, handles distributions, and oversees reporting. Fidelity notes that charitable lead trusts generally require ongoing maintenance and careful planning to ensure they can continue making the required payments throughout the trust term.

Where Beem Fits

Beem fits best at the foundation level of the estate plan. Its own charitable trust explainer makes a strong point: most families need the basics in place first, including a valid will, a basic revocable trust, healthcare directives, powers of attorney, and up-to-date beneficiary designations, before moving into advanced charitable planning.

Through Beem’s partnership with GoodTrust, members can build foundation with wills, trusts, healthcare directives, powers of attorney, guardian naming, and a digital vault for important documents and digital assets. That makes Beem a practical starting point for the larger estate plan around your charitable goals.

For the charitable trust itself, though, this is usually the stage at which a qualified estate planning or tax attorney should step in. A CRT or CLT is specialized drafting, while Beem helps organize and strengthen the rest of the estate plan that surrounds that advanced strategy. Download the app now!

FAQs: Can You Set Up a Trust for Charitable Purposes?