Putting Charity in a Living Trust

In addition to the other advantages of revocable living trusts, they offer a variety of ways to make gifts to charity.

Lifetime gifts—The grantor can name charity an income beneficiary of a living trust, generating an income tax charitable deduction for the grantor for amounts passing annually to charity.

Distributions at death—The grantor can direct that, at death, the trustee distribute certain assets or a percentage of the trust corpus to charity.  The estate is entitled to a charitable deduction for the value of charity’s interest, just as if the bequest was made through a will.  Why would someone prefer to leave assets to charity through a trust rather than by will?  First, it may be easier and less expensive to make later adjustments to charity’s interest through a trust than to have a new will or codicil drafted.  Assets pass to charity faster through a trust than a will; the trustee can make the distribution immediately with a trust, while a will must be probated.  Privacy also may be a consideration.

Revocable charitable remainder trust—Clients can create revocable inter vivos trusts that provide them with income for life and a remainder to charity.  The donor is not entitled to income tax benefits from the trust, but is able to exercise unlimited control over the trust, which is not possible with a qualified charitable remainder trust.  At the donor’s death, if charity’s interest has not been revoked, trust assets will be included in the donor’s gross estate but will qualify for an estate tax charitable deduction [Code §2055].

Conversion into a qualified charitable remainder trust—A client can provide that the revocable living trust be transformed at death into a qualified charitable remainder trust that provides payments for life or a term of years (up to 20) to a family member.  This also generates an estate tax charitable deduction.

Conversion into an irrevocable, nonqualified charitable remainder trust—Clients might wish to have their revocable trusts become irrevocable at death, paying income to family members, with remainder to charity.  Such a trust makes sense where the client wants more flexibility for family members (to invade trust principal, for example), and is not concerned about the estate tax charitable deduction.

Conversion to a QTIP trust, remainder to charity—A revocable living trust can become an irrevocable QTIP trust at death, securing the unlimited estate tax marital deduction [Code §2056(b)] and a subsequent, unlimited estate tax charitable deduction upon the death of the surviving spouse—with charity as the remainderman.  A qualified charitable remainder trust is unnecessary where estate taxes are not a problem at the death of the client, which is the case with assets passing to a properly drawn QTIP trust [Code §§ 2044(c), 2055].

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