Sometimes a donor signs over a set of assets or makes use of the assets to form a charitable foundation, this is known as charitable trust. The assets signed over will be managed or held by the charity over a specific duration and a part of or the whole interest generated by these assets over that time period goes for the charity. Annuity refers to a specific determined amount which goes for the charity every year permanently; whereas a Unitrust is where annual payments are fixed by calculating the percentage of the trust’s value in any given year and it may vary each year.
There are 2 types of charitable trusts. Remainder trusts, where the assets will be signed over for a specific period of time to a charitable organization and once that specific time period is over, all the assets will become the property of the charitable organization. The period of time maybe fixed for a few years or even after the death of the donor. One of the largest remainder trusts is Bill and Melinda Gates Foundation Trust.
The lead trust is a kind of trust where the donor will be having control over the assets rather than giving control to the charitable organization and the interest generated by the assets will go the charity or split between the charity and the beneficiaries. Once the duration of the trust is over, the control of the assets will go over to the party chosen by the donor.
Setting up of charitable trusts allow the charitable organizations to get the much needed funding and it also provide tax breaks to the donor. The donor is eligible for federal income tax deduction and it varies depending upon the value of the trust.
The Bill and Melinda Gates Foundation trust has assets valuing over 30 million USD and funds a wide range of projects in high poverty and developing regions of the world.