For many of my clients, charitable giving is a deeply held value that reflects a lifelong commitment to helping others and supporting meaningful causes. My clients who regularly contribute to nonprofit organizations often wish to ensure that their generosity continues beyond their lifetime. One effective way to accomplish this goal is by naming a charity as a beneficiary of a trust. Doing so provides flexibility, potential tax advantages, and an opportunity to structure charitable gifts in a way that aligns with long-term philanthropic and family objectives. Allow me to explain how a charity can be named as a trust beneficiary and why using a trust to make charitable gifts may be preferable to making charitable gifts in your Last Will and Testament.
Making Charitable Gifts Through a Will
Including charitable bequests in a Last Will and Testament is a traditional method of supporting a cause after death. A Testator can direct that a specific charity receives a certain amount of money, a piece of property, or a percentage of the estate. While this is a valid and straightforward approach, it has several limitations. First, the gift only transfers after the donor’s death, meaning the individual cannot witness the positive effect of their contribution. Second, once the gift is delivered, the charity has complete control over how it is used, with no ability for the donor to place conditions or restrictions. Third, testamentary charitable gifts generally do not offer the same level of income or estate tax relief that may be achieved through trust-based giving. For donors who wish to create an enduring legacy and maintain some oversight of their charitable impact, a trust provides a more sophisticated solution.
Understanding How Trusts Work in Maryland
A trust is a legal arrangement that allows one person, known as the Grantor, Trustor, or Settlor, to transfer property to another person, known as the Trustee, who manages the assets on behalf of one or more beneficiaries. The terms of the trust agreement control how the property is managed, when distributions occur, and under what circumstances beneficiaries receive funds.
Trusts generally fall into two broad categories, testamentary trusts and living (or inter vivos) trusts. A testamentary trust is established through a provision in a Will and becomes active only after the Grantor’s death. A living trust, on the other hand, takes effect as soon as it is properly executed and funded. Living trusts may be revocable or irrevocable. A revocable trust allows the Grantor to modify or terminate the trust during their lifetime, while an irrevocable trust typically cannot be changed once it is created. Although irrevocable trusts require the Grantor to relinquish significant control, they often offer more substantial protection from creditors and may provide significant tax benefits.
Including a Charitable Organization as a Trust Beneficiary
A charitable organization can be included as a beneficiary of a trust in several ways. Some individuals choose to establish a trust that benefits only charitable causes. Others create what is known as a “split-interest” trust, which allows both charitable and non-charitable beneficiaries to receive benefits from the same trust. Two of the most common types of split-interest trusts are charitable lead trusts (CLTs) and charitable remainder trusts (CRTs).
A charitable lead trust directs that one or more charitable organizations receive income from the trust for a specific period, such as a set number of years or the lifetime of a named individual. Once that period ends, the remaining trust assets pass to non-charitable beneficiaries, such as children or other heirs. For instance, a Grantor might establish a CLT that provides annual payments to a Maryland nonprofit for twenty years, after which the remaining property is distributed to family members.
A charitable remainder trust operates in the reverse order. The non-charitable beneficiaries receive income from the trust first, either for a defined term or for life, and when the payment period ends, the remainder of the assets are transferred to the designated charitable organization. This arrangement allows the donor to provide for loved ones while also ensuring that a favorite charity ultimately receives a meaningful contribution. For example, a Grantor might create a CRT that pays an adult child a fixed annual amount for life, with the remaining balance distributed to a local university foundation upon the child’s death.
Benefits of Naming a Charity as a Trust Beneficiary
Naming a charity as a trust beneficiary offers several advantages that are not available through a Will. One of the most appealing benefits is the ability to make charitable gifts during one’s lifetime. A living trust can begin distributing funds immediately, allowing the Grantor to observe how their contributions are making a difference. This can be particularly rewarding for individuals who wish to see their generosity at work.
Trust-based charitable giving may also provide tax advantages. Depending on how the trust is structured, the Grantor may qualify for an income tax deduction for the charitable portion of the trust and may reduce the size of their taxable estate. In addition, assets placed in an irrevocable trust are generally protected from future creditors, ensuring that charitable gifts are preserved.
Another important benefit is the ability to maintain control over how charitable funds are used. Through the terms of the trust, the Grantor can specify how distributions should be applied—for example, to fund scholarships, advance medical research, or support religious or cultural programs. This ability to direct the use of funds ensures that the donor’s philanthropic objectives are honored long after their death.
Privacy is another significant consideration. Because a Will must go through the public probate process, gifts made through a Will become part of the public record. A trust, in contrast, operates privately, meaning that charitable distributions can be made discreetly without attracting unwanted attention or solicitation. This privacy can be especially valuable for donors who prefer to keep their financial affairs confidential.
Can We Help You Incorporate a Charity As a Trust Beneficiary in Your Maryland Estate Plan?
For more information, please contact our estate planning office in Owings Mills, Maryland by calling 410-654-3850 to schedule an appointment.
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