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The role of charitable trusts in Pennsylvania

According to the Internal Revenue Code, a charitable trust is treated as a private foundation and as such is not tax exempt in the way that many public charities are. However, various taxes such as capital gains tax or estate taxes are not levied upon charitable trusts. This makes it ideal for estate planning for an individual who wishes to leave an income-generating asset or assets to charity.

Pennsylvania residents may make use of charitable trusts in order to provide a steadier stream of income to a favorite charity or charitable organization. All income produced by the assets within the trust go to the charity over the course of its life. Written into the rules determining the administration of a trust, the settlor must either indicate that the charity gains full ownership of the assets, as a remainder trust, or that other beneficiaries in the will gain ownership, as a lead trust, within a set number of years following the settlor's death.

A charitable trust may be established immediately as an irrevocable structure upon an individual's death as part of the last will, or it may be established as a revocable structure while the individual is alive. A reasonable period for estate settlement must pass before a revocable trust becomes an irrevocable charitable trust.

An estate-planning lawyer can help decide if a charitable trust is the right way to handle donation of one's estate to charity. There may be numerous short-term and long-term benefits to leaving the income produced by capital assets to charity rather than simply donating the assets outright. For Pennsylvania residents looking to manage their money according to their final wishes, charitable trusts offer a sound financial means to protect one's intent following death and ensure a steady income stream for a chosen charity or charities.

Source: IRS.gov, "Charitable Trusts", November 11, 2014

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