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What is a Charitable Trust Fund?

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  • Written By: Patrick Roland
  • Edited By: A. Joseph
  • Last Modified Date: 10 September 2016
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A charitable trust fund is a donation to a nonprofit organization that serves to help those who are less fortunate and to provide benefits to the donor. Those benefits can include exceptional tax breaks and, in many cases, an ongoing form of income. There are many rules and regulations that must be followed before setting up a trust fund in the United States, including approval from the Internal Revenue Service (IRS). After a trust fund is set up, it is irrevocable, and those assets are no longer the property of the donor.

Setting up a charitable trust fund is a time- and labor-intensive process that requires much consideration on the part of the donor. First and foremost, the donor must have a large sum of money or valuable assets, such as property, to donate. In the U.S., the charitable trust fund must be named as a 501(c)(3) charitable organization recognized by the IRS. Similarly, the money or property must be designated to go to an IRS-recognized charity or charities.

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A charitable trust fund gives this donation to a specific group or groups in order to help with operational expenses. The fund normally is run by an executor or by the charity that has been entrusted with the money. An executor is common in trusts that give money to several charitable organizations, and it is his or her job to determine how much money goes out annually. When a trust is set up for a specific charity, usually the president of that organization is recognized as the director of the funds and handles all necessary work in regard to the trust. Executors can hold this post for a predetermined amount of time or until the funds have run out.

A charitable trust fund has been recognized as having two advantages for the donor. The first benefit is providing for a favorite charity and having the gratification of helping other people. Secondly, financial benefits such as a significant reduction in taxes are very appealing. Also, the donor can make the trust a lead or remainder trust, meaning that he or she can request a stipend from the trust each year or ask for a percentage of its income.

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