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When creating a charitable remainder trust, you have a number of choices to make. These choices will determine the sort of payouts you receive, the tax treatment, who handles the money for you, how much control you have over your investments, and other issues of import. The main decisions you will have to make are:
- Coosing an attorney to draft the trust — As the rules for trusts in general, and charitable trusts especially, are complicated and arcane, it is not recommended to draft them yourself. You would be best served to choose an attorney specializing in wills, trusts, and estates to draft it for you. Consulting a financial and tax advisor would also be wise.
- Choosing a trustee — In the case of a charitable remainder unitrust, the trustee is often the charity itself. A number of larger charitable institutions provide this service to donors. The Red Cross is one well-known example. You should investigate other options as well, though, so as to be able to negotiate the best possible terms for you and your family.
- Choosing the income beneficiaries — These are the people who will draw income from the trust during your lifetime. They can be individuals, institutions, other entities, or a mix of all three. They can even include other charities.
- Choosing the Charitable Remainder Beneficiaries — These are the charities that will receive the remaining assets in the trust when you pass away.
- Choosing a payout rate — This is a complicated decision, which will be based on market conditions, interest rates, and the types of investments made with the assets of the trust. It would be best to consult a professional financial advisor when making this determination.
- Choosing the Frequency of the Payments — This is just how often the beneficiaries receive payments from the trust. The most common choices are annual and monthly.
- Selecting the term of the trust — This generally comprises picking one or more persons whose lifetimes will determine the lifetime of the trust. This is most often the donor, but can also be the beneficiaries.
One thing to watch out for when putting your trust together is that there is a ban on what's known as "self-dealing" with charitable unitrust assets. This applies to the donor, his or her family, and any corporations in which they own a significant interest. It can also include the beneficiaries, depending on the situation. Prohibited actions include buying from, selling to, and renting from the charitable remainder trust, and in general doing business with the trust.
Formalities
Like other trusts, there are certain formalities that must be followed when creating a charitable remainder trust. These were set forth in the well-known case of Knight v. Knight. Typically, the formation of a trust requires three certainties:
- Intent — A clear intent to create a trust must be demonstrated. This is usually a simple matter of the documents used to execute the arrangement clearly specifying that a trust is to be created
- Subject Matter — The assets that will make up the corpus of the trust must be specified clearly and precisely when the trust is created. Any form of property may be given to a trust, including real, personal, tangible, intangible, and even intellectual. For example, patents, copyrights, and trademarks are all properties that may be given over to a trust.
- Objects — The beneficiaries of the trust must be set forth clearly and specifically. Beneficiaries can include people not born when the trust is created, however. For example, a person may set of a trust for the benefit of his offspring, and future offspring will be included. The general requirement is that the group of beneficiaries must be ascertainable with precision.
Charitable trusts in general are a special case where objects are concerned, as the objected are allowed to be charitable causes rather than specific persons or entities. Further, charitable trusts do not necessarily fail if their objects are not sufficiently clear. Still, it is best to follow the three certainties in order to ensure that your wishes are carried out.
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