Uses of charitable trusts
A charitable trust is a type of trust formation that is built for the primary purpose of charitable activity and aid. Generally charitable trusts are known as irrevocable trusts that are established for ‘charitable purposes’. When deciding to set up a charitable trust, you must consider the jurisdiction where you intent to form the trust very carefully as each country offers its own benefits and restrictions. It is therefore advised that you enlist the help of a professional consultancy firm before forming the trust to ensure you have chosen the most optimal trust solution available to you.
For more information on the different types of trusts available or to find out how DeltaQuest can assist you with your trust, please Contact DeltaQuest.
Charitable Trust Explained
Charitable trusts, as mentioned, are formed for charity or the benefit of the economy and environment. Many of the existing charitable trusts were created to aid poverty, help disaster areas recover and support fundamental freedoms.
Generally a charitable trust operates whereby the donor of the trust assets signs over title and use of the assets to the charitable trust or foundation itself. Once the assets are held in the trust, the trust management board will oversee how it is administered for a specified period of time.
There are two forms of charitable trusts, namely; remainder trusts and lead trusts. A remainder trust causes for all assets donated to the trust to be signed over to the trust for a specified period of time. Once this period expires, the assets and interest made on the assets over this time is given to the trust.
Lead trusts are similar to remainder trusts with the main exception being that the donor of the trust assets holds control of them, unlike in a remainder trust where the title and use of assets is under the management of the charitable trust. The assets held in a lead trust which accumulate interest will be split between the trust and the beneficiaries as stipulated by the donor of the assets. Unlike a remainder trust, once the lead trust validity expires, the assets are not given to the trust but are to be controlled by the beneficiaries of the donor.
The main advantages of a charitable trust include:
- Flexible framework for strategic giving
- Tax benefits
- Commitment to helping environmental, economical and other charitable causes
- Form of effective asset protection
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