This trust is designed to provide an income stream to one or more beneficiaries for a specific period of time or for a lifetime, with the remainder passing to a charity or charities of your choice. While there are tax benefits to creating this type of a trust, the trust must be irrevocable and follow strict rules set forth by the IRS. The two types of charitable remainder trusts are charitable remainder annuity trusts and charitable remainder unitrusts. The annuity trust returns a fixed dollar amount to the donor or other beneficiary designated by the donor, while the unitrust pays out a percentage of the trust's value (as redetermined). This can be a hedge against inflation assuming the trust assets increase in value, but unlike the fixed payments from a charitable remainder annuity trust, if the investments in a unitrust decline in value, your annual payment also would decrease.
The trustee is an individual or an institution, such as a bank, that manages assets held in a trust for the beneficiary(ies) of the trust. The responsibilities of a trustee managing a trust upon your death generally are to:

  • Identify assets in the trust;
  • Manage the addition of any assets to the trust by your executor according to the terms of your will;
  • Invest the assets in the trust created; and
  • Distribute the assets outright to your beneficiaries and/or continue the trust or establish any new trust as specified in the trust documents.

Giving to charity is not only personally rewarding during your lifetime, but may establish a legacy of good will at your death. To encourage the spirit of philanthropy, the federal government allows certain tax deductions for donations made to qualified charities.

Before giving a substantial gift to charity, make sure to plan for your financial needs for later in life. Also consider where individual beneficiaries fit into your estate plan if you plan to make a charitable bequest. Whether you give a dollar amount or a percentage of your estate to a charity may make a large impact on what your other beneficiaries eventually inherit. Giving payment priority to a charity may leave your beneficiaries with less than you expected; or, conversely, giving priority to your beneficiaries may leave nothing for the charity.

Some choose to make one-time gifts to charities either during their lifetime or at their death. However, the following are alternatives for giving to charities that may simplify making multiple gifts over a period of time, investing the funds, or balancing giving to many organizations.

Charitable Donor-Advised Funds

A charitable donor-advised fund is often a less costly and less complex alternative to a private foundation. It is also an excellent way to time your tax-deductible charitable contributions to fit your personal financial situation. An example of this type of donor-advised fund is The T. Rowe Price Program for Charitable GivingSM.* In this case, you would make an irrevocable tax-deductible contribution (subject to IRS limits) to the Program, which is invested in up to six professionally managed investment pools based on your recommendation. You can recommend—immediately and over time—grant distributions from this account to support public charities of your choice. The fund allows you to appoint friends, family members, or trusted professionals as the account's advisor(s) and to name successors to carry on your tradition of charitable giving in the future.

Charitable Trusts**

Charitable trusts allow you to support both your favorite charity and your beneficiaries from the same pool of assets. Depending on the charitable trust, you can accomplish the goals of providing both an annual income stream to you or your beneficiaries and a future gift to a charity.

Private Foundation**

A private foundation is a nongovernmental, nonprofit organization managing its own funds or endowments. Trustees or directors oversee the foundation and are required to file informational tax returns with the IRS and pay out at least 5% of the foundation's net assets annually. Private foundations may be costly and difficult to manage, but they allow the most flexibility to trustees.

*The T. Rowe Price Program for Charitable Giving is an independent, nonprofit corporation and donor-advised fund founded by T. Rowe Price to assist individuals in planning and managing their charitable giving.

**The rules for charitable trusts and private foundations are complex, so it is important to consult an experienced estate planning professional to avoid pitfalls and to properly assess the potential advantages and/or disadvantages of including such a trust or foundation in your estate plan.