When Would You Use a Charitable Trust? Practical Reasons and Real-Life Scenarios

Most people think of charitable trusts as something only the ultra-rich use. But that’s not true. A charitable trust isn’t just for billionaires with yachts and private islands. It’s a powerful tool anyone can use when they want to give meaningfully, protect their assets, and reduce taxes-all at the same time. If you’ve ever thought about leaving a legacy through charity but aren’t sure how to do it without losing control or paying too much in taxes, a charitable trust might be exactly what you need.

What Exactly Is a Charitable Trust?

A charitable trust is a legal arrangement where you transfer assets-like cash, stocks, real estate, or even artwork-to a trust that benefits a charity. You get to decide how the money is used, when it’s distributed, and sometimes even who manages it. The trust pays out income to you or someone else during your lifetime, and after you pass, the rest goes to the charity you chose.

There are two main types: charitable remainder trusts (CRTs) and charitable lead trusts (CLTs). A CRT gives you or your beneficiaries income first, then the charity gets the leftover. A CLT does the opposite: the charity gets income for a set time, then the rest goes to your heirs. Most people use CRTs because they offer immediate tax breaks and ongoing income.

You Want to Avoid Capital Gains Taxes

Let’s say you bought a piece of land 20 years ago for $50,000. Today it’s worth $400,000. If you sell it, you’ll owe capital gains tax on the $350,000 profit. In many states, that could mean paying over $100,000 in taxes. But if you put that land into a charitable remainder trust, you don’t pay any capital gains tax when the trust sells it.

The trust sells the property, reinvests the money, and pays you a fixed percentage-say 5%-each year. You get income for life, and the charity gets the rest after you’re gone. You also get an immediate income tax deduction based on the estimated value of what the charity will eventually receive. That deduction can reduce your taxable income by tens of thousands of dollars in the year you set it up.

You’re Planning Your Estate and Want to Reduce What Your Heirs Pay

Estate taxes can take a huge bite out of what you leave behind. In 2025, the federal estate tax exemption is $13.61 million per person. But if your estate is worth more than that-or if you live in a state with its own lower estate tax threshold-your heirs could owe big money.

By putting assets into a charitable trust, you remove them from your taxable estate. That means less tax for your family. For example, if you have a $2 million home and you put it into a charitable remainder trust, that $2 million is no longer counted in your estate. Your children might still get other assets, but now they won’t face a 40% federal estate tax on that portion.

This works especially well if you already have a will or living trust in place. A charitable trust complements those tools. It doesn’t replace them-it enhances them.

You Want to Support a Charity but Still Need Income

Many people want to give generously but aren’t ready to give up their savings. Maybe you’re retired and rely on investment income. Maybe you’re still working but want to start giving now without cutting into your monthly budget.

A charitable remainder trust lets you do both. You transfer an asset-like shares of stock worth $300,000-into the trust. The trust sells the stock tax-free and invests the proceeds. You get paid 5% annually, which is $15,000 a year, for the rest of your life. The charity gets the remaining balance when you pass away.

Compare that to just writing a check for $300,000. You’d lose the income stream and get a one-time tax deduction. With the trust, you keep income, avoid capital gains, and still give big. And if you live longer than expected, you keep getting paid. If you pass sooner, the charity still gets its gift.

You Own Illiquid Assets and Want to Turn Them Into Income

Not everyone has cash to donate. Maybe you own a rental property, a small business, or a collection of rare coins. These are valuable but hard to sell quickly. A charitable trust can help you turn them into steady income.

For example, you own a commercial building that brings in $20,000 a year in rent. You’re tired of managing it. You don’t want to sell it and pay taxes. So you transfer the building into a charitable remainder trust. The trust takes over management, sells the property, and invests the proceeds in a diversified portfolio. Now you get $15,000 a year in income-with no hassle-and the charity gets the rest later.

This is a common strategy among small business owners, farmers, and real estate investors who want to exit their holdings without a tax shock.

You Want to Give to a Charity That’s Not Publicly Known

Some people want to support a local food pantry, a small animal rescue, or a community arts program that doesn’t have a big donor base. These organizations often can’t afford to set up their own endowment funds.

A charitable trust lets you create a lasting gift to any qualified nonprofit-even one that’s small or new. You can name the organization as the beneficiary, and the trust handles everything. You don’t need to worry about whether they can manage a large donation. The trust does it for you.

And because the trust is legally binding, your gift is guaranteed. No more wondering if the charity will still be around in 10 years. The trust ensures your money keeps working for your cause, no matter what.

You’re Looking for a Way to Give Without Giving Up Control

Some donors worry that once they give money to charity, they lose all say in how it’s used. That’s not true with a charitable trust.

You can specify exactly how the charity uses the funds. Want your gift to go only to youth education? Done. Only to animal welfare? Easy. You can even name yourself or a trusted friend as the trustee, giving you direct oversight. Or you can choose a bank or nonprofit to manage it, but still require annual reports on how the money is spent.

This level of control is rare in other forms of giving. A simple donation? You hand over cash and walk away. A donor-advised fund? You recommend grants, but the sponsoring organization has final say. A charitable trust? You’re in charge.

When a Charitable Trust Isn’t Right for You

It’s not a magic solution. A charitable trust works best when you have assets worth at least $100,000. Setting one up costs $3,000 to $8,000 in legal fees, and there are ongoing administrative costs. If you’re giving $10,000 and expecting big tax savings, it won’t make sense.

Also, once you transfer assets into the trust, you can’t take them back. It’s irrevocable. So if you’re unsure about your future financial needs, this might be too risky.

And if you’re not comfortable with complex legal structures, a donor-advised fund might be simpler. But if you want maximum control, tax efficiency, and long-term impact, a charitable trust is unmatched.

Real Example: Maria’s Story

Maria, 68, owned a small apartment building in Portland. She’d bought it in 1995 for $220,000. By 2025, it was worth $1.1 million. She was tired of repairs and tenant issues. She also wanted to leave something to her favorite animal shelter, which had saved her dog during a fire years ago.

She didn’t want to sell and pay $250,000 in taxes. She didn’t want to give the building outright and lose income. So she set up a charitable remainder trust. She transferred the building into the trust. The trust sold it, paid no capital gains tax, and invested the $1.1 million in bonds and dividend stocks.

Maria now gets $55,000 a year (5% of the trust’s value). She pays income tax on that, but it’s far less than what she’d pay if she sold the building outright. She also got a $400,000 income tax deduction in the year she set it up, which cut her tax bill by $96,000.

When she passes, the shelter gets the full remaining balance-projected to be over $1.5 million. She didn’t just give money. She gave sustainability.

Next Steps If You’re Considering a Charitable Trust

1. Take inventory of your assets. What do you own that has appreciated in value? Stocks, real estate, business interests?
2. Decide which charity you want to benefit. Make sure it’s a 501(c)(3) nonprofit.
3. Talk to an estate planning attorney who specializes in charitable giving. Don’t use a generic lawyer.
4. Ask for a projection of your tax savings and income stream. Reputable firms will run this for free.
5. Compare it to a donor-advised fund. Which gives you more control? More flexibility? Better tax results?

There’s no rush. You can set up a charitable trust anytime-even if you’re 80. The key is to plan ahead so your gift does exactly what you want it to do: help others, protect your legacy, and ease the burden on your family.