According to a recent report, the global charitable contribution by individuals and organizations was estimated at around $400 billion in 2020. This underlines the fact that charitable trusts today play an integral role in society and have become increasingly popular over time.
Charitable trusts allow individuals or organizations to contribute funds or assets towards a specific cause, such as social welfare, education, healthcare, and research and development, among others. However, creating one requires meticulous planning and professional assistance to ensure the successful execution of the intended goals set at inception. In this blog post, we’ll discuss what a charitable trust is, the benefits it offers to donors, and the various stages involved in planning for charitable trusts and creating a well-thought-out plan with the help of professionals who specialize in this field.
What is A Charitable Trust?
A charitable trust can be defined as an agreement between two parties whereby one party agrees to grant control of assets for purposes stated therein while another undertakes responsibilities for managing those assets within agreed limits. One common purpose of these trusts is charity work. This involves donations towards certain causes like supporting medical research or feeding orphanages, to name a few.
Benefits Offered by a Charitable Trust
The formation of a charitable trust offers several significant benefits. One key advantage is the reduction of personal income taxes by setting aside funds that are specifically allocated toward a preferred cause. Additionally, contributors to these trusts receive tax deductions against their income taxes, providing further incentivization to donate consistently over time. Lastly, the individual or organization responsible for creating the non-profit entity has unparalleled discretion over how the raised funds are utilized, enhancing autonomy within the donation process.
Stages Involved in Creating and Managing a Customized Charitable Plan
The following are some of the most important steps involved in creating and managing a customized charitable plan:
1) Defining the Goal
Before delving into the paperwork, take the time to collaborate with your advisor(s) to establish the key objectives that you hope to achieve through your trust. Define the causes you wish to support, the methods of support, and the specific timeline over which your efforts will span.
2) Selecting an Appropriately Qualified and Specialized Professional Advisor
Due to the complexity of charitable trusts, it is advisable to seek assistance from professionals who possess not only the right credentials but also hands-on experience in this field. By doing so, you significantly reduce the likelihood of encountering common pitfalls or challenges that may arise without proper professional guidance.
3) Drafting Your Legal Documents
Once your objectives are well-defined and you’ve engaged a qualified attorney specializing in this area along with a tax professional, they can collaborate on drafting the necessary legal documentation for submission to relevant authorities, such as the Internal Revenue Service (IRS).
4) Establishing the Trust Itself
Once all valid documents containing instructions and ground rules are settled, it’s time to take concrete action by opening an account specifically designated for the funding collected. This account will be geared towards achieving the intended goals of the charitable trust.
5) Seeding Your Charity Account with Initial Funds
While there are no limitations on how or when funds can be seeded into the accounts at the inception, donors have the flexibility to adjust their contributions according to their preferences and desired cadence. This occurs after the inaugural purchase agreement has been signed off by the respective parties.
6) Managing or Overseeing Operations in Line with Stipulated Guidelines
To maximize the potential efficiency of the charity organization, we recommend hiring dedicated personnel responsible for the day-to-day operations involved. They will ensure that the goals laid out during the initial planning stages are met. Moreover, they will provide visual reports and updates that inform contributors of previous contributions spent, demonstrating how funds have been positively allocated. This approach encourages more financial involvement going forward.
Charitable trusts provide an ideal opportunity for individuals who are willing to donate funds toward fulfilling a particular cause they are attracted to. However, establishing and managing these trusts requires detailed planning, exceptional attention to detail, and precise execution. Most importantly, they are best suited for those who understand the intricacies surrounding these arrangements. Seeking out expert advice whenever required is crucial to ensure the successful establishment of a trust tailored around aspirations and objectives that align with the interests of all parties involved, ultimately contributing to the betterment of our world at large.
Iskra Banović is our seasoned Editor-in-Chief at BlueFashion. She has been steering the website's content and editorial direction since 2013. With a rich background in fashion design, Iskra's expertise spans across fashion, interior design, beauty, lifestyle, travel, and culture.