Charitable Trusts in Michigan

Charitable Lead Trusts

A Charitable Lead Trust (CLT) has a certain amount of its income set to go to a charitable organization. The remaining amount will either stay in the Trust or be disbursed to the Trust's beneficiaries. A CLT is most beneficial to beneficiaries who do not depend on the Trust as a main source of income.  

Charitable Remainder Trusts 

A Charitable Remainder Trust (CRT) operates differently than a CLT. Beneficiaries are paid a certain predetermined amount, then the remainder is paid to the charitable organization. A CRT is a better choice when the beneficiaries depend on the money from the Trust as a main source of income.  

When people place their assets in a Charitable Trust, it benefits more than just the charity itself. There are certain tax benefits that may be available to donors of Charitable Trusts, and additional benefits when reducing estate taxes. It is also a valuable way to protect assets from creditors and, if sold, can be an effective way to create income without any tax liability.   

On the other side of the coin, there are many reasons why people decide against placing their assets in a Charitable Trust. First, as mentioned, a Charitable Trust is irrevocable. Once it has been established, the terms cannot be amended. For some, the unpredictability of their financial future is enough to prevent them from choosing a Charitable Trust, as they may need the income later. Next, establishing and operating a Charitable Trust includes costs and fees that may be too high for some people. Finally, some family members may not like that a donation is being made to a charitable organization, which can create tension.  

A CLT has a certain amount of time in which it operates, and when that ends, the remainder is distributed to the beneficiaries. A CRT is terminated when the beneficiaries' income stream ends, and the remaining property in the Trust is then disbursed to the charitable organization. Sometimes circumstances arise which cause the need for a Charitable Trust to be terminated early. But, as it is irrevocable, it is unlikely that premature termination is possible.