Last month, a Texas businessman bestowed a quarter-billion dollar gift upon the Kentucky college he attended a half-century earlier. Sam Simon, a co-creator of the popular TV Cartoon, The Simpsons, after a diagnosis of terminal cancer and a near-fatal medical scare, engaged in trust planning to benefit the animal and homeless persons’ charities he supported throughout his life. Similarly, whether it is a church, an alma mater, a hospital, an organization that helps animals, or a foundation that serves impoverished children, Wisconsinites are also generous with their financial resources. Using trusts to accomplish one’s charitable estate planning goals can be an essential element of maximizing the amount of money one can provide for his/her favorite charitable entities.
Wisconsin law limits the types of endeavors that a charitable trust may benefit. Those causes include: “relief of poverty, advancement of education, advancement of religion, promotion of health, governmental or municipal purposes or any other purpose the accomplishment of which is beneficial to the community.” Charitable trusts may provide substantial benefits to the donor and the recipient as, depending on the size of the donor’s estate, they may help minimize or eliminate the taxes the donor must pay at death, which in turn allows a larger amount of the donor’s money to pass to the charitable beneficiary.
Charitable trusts come in many different varieties. One such trust is the charitable remainder trust (CRT). These trusts allow the creator (or “grantor”) to receive payments from the trust for a period of time after which the remaining assets go to the stated charity. For example, John Doe could create a CRT and fund it with $1 million in stocks. He could then receive annual payments equaling a fixed percentage of the trust’s worth or a fixed dollar amount. Then, upon his death, the assets remaining in the trust would go to the charity he named in the trust agreement.
Another type of charitable trust is the charitable lead trust (CLT), which simply reverses the order of operations from the CRT. In a CLT, the charity receives payments of a fixed percentage or dollar amount for a pre-determined period of time. After that, the remainder of the trust’s assets is distributed to one or more non-charitable beneficiaries named in the trust agreement.