What Is a Charitable Trust?

A charitable trust is a tax-exempt account used to provide donations to an approved charity. A charitable trust is set up during the lifetime of the donor, but donations can be provided during life or after death. In either case, the tax benefits are given while the trust is active to the donor or inheritors of the trust.

Approved Charities

You cannot set up a charitable trust to the benefit of any organization you may choose. Instead, the IRS has to recognize that organization as a charity, which typically means it will be established as a tax-exempt organization. If the IRS approves of the charity of your choice, you can establish the trust and appoint the charity as one of the trustees.

Tax Benefits

The main reason to set up a charitable trust rather than donate directly to a charity is for tax purposes. You can provide property to the trust that is still earning income or gains. This income is deducted from the amount you contribute to the charity each year. This would permit you, for example, to purchase and maintain ownership of a building used as offices for a charity and earn equity in that building but still deduct expenses incurred as a charitable donation.