How a charitable split-interest trust works

On Behalf of | Jul 3, 2017 | Trusts

A charitable split-interest trust is one way that Nevada residents can donate to charity as well as providing an income for beneficiaries. These types of trusts have several other advantages as well. They can create income from properties that are not profitable because property can be placed in the trust and sold as tax-exempt. There are income tax exemptions for a charitable trust, and it can also result in a reduction in estate tax and gift tax.

A charitable split-interest trust can be set up as a charitable remainder trust or a charitable lead trust. In the former case, the trust is set up to pay a noncharitable beneficiary a regular income for a certain amount of time up to 20 years or the lifetime of the beneficiary or creator of the trust. After this time, the remaining assets in the trust go to the charity. In the latter case, the situation is reversed with the charity receiving regular distributions over a fixed time period and the remainder going to another party.

For greater flexibility, a charitable split-interest trust can be set up along with a donor-advised fund as the charitable beneficiary. This makes it possible to change charities. A CRT can be set up so that it funds a life insurance policy.

A person who is creating an estate plan may be unaware of what powerful tools trusts can be. For example, with a special needs trust, a person can help support a loved one who receives government benefits without endangering those benefits. Because the funds go into the trust, they are not counted as the loved one’s income or assets, and they can be used directly to pay for things that government benefits might not.