- I'm starting with the United States. Please feel free to expand to other countries.
In the United States, there are complex tax law differences between private and public charities.
Donations to charities in the United States are deductible for income tax purposes if the organization has exempt status from the Internal Revenue Service, usually under non-profit organization sec. 501(c)(3) of the tax code. Such organizations file a tax return by using IRS Form 990, which is monitored by watchdog groups like Charity Navigator to analyze their business practices. Any organization meeting the rules of section 501(c)(3) can be classified a charity in the US, including trusts, foundations and corporations.
US tax law also allows trusts that do not qualify as exempt under 501(c)(3) to get significant tax advantages if they are set up with specific provisions.(). These are called Charitable Remainder Trusts (CRT) and Charitable Lead Trusts (CLT).
Charitable Remainder Trusts are so named because the remainder of the assets in the trust passes to a designated charity at the death of the grantor or one or more beneficiaries. A current tax deduction is given for the portion that is determined to be the expected amount the charity will receive in the future, which is called the remainder. During the lifetime of the primary beneficiary, a percentage of assets or a fixed dollar amount are paid to the primary beneficiary. There are two primary types of CRTs: Charitable Remainder Unitrusts (CRUT), where a percentage of assets is received by the lifetime beneficiary, and Charitable Remainder Annuity Trusts (CRAT), where a fixed dollar amount is received every year. Charities or other trustees are also allowed to set up pooled trusts that operate similarly to individual CRTs except that they receive contributions from multiple donors. This allows each donor similar benefits as an individual CRT without the expense of creating the trust themselves.
The Charitable Lead Trust is essentially the reverse of a Charitable Remainder Trust (). In this form, the lifetime payments go to the charity and the remainder returns to the donor or to the donor's estate or other beneficiaries. Thus the two types of CLTs are CLUTs and CLATs, which are analogous to CRUTs and CRATs.
Similarly named and often confused with CRUTs and CRATs are Grantor Retained Unitrusts (GRUT) and Grantor Retained Annuity Trusts (GRAT) (). The difference is that GRUTs and GRATs do not involve charitable beneficiaries and therefore are not given the charitable deduction.
- The source for this page includes Wikipedia, copied on March 16, 2007.