Philanthropy and Charitable Trusts Explained

Philanthropy and Charitable Trusts Explained

Philanthropic planning has grown beyond simple acts of kindness. It’s a meaningful way for individuals, especially those with significant wealth, to leave a lasting impact on causes that they care about. Today, high-net-worth donors want ways to combine personal values with long-term giving strategies. Total U.S. charitable giving reached a record $592.5 billion in 2024, a 6.3% increase from the previous year. 

This philanthropy guide will explore the most common giving vehicles. We'll also discuss the benefits of structured philanthropy. Looking for some inspiration for your own charitable giving strategies? We'll tell you about the trends shaping the future of philanthropic contributions. 

Modern Philanthropy for High-Net Worth Individuals

High net worth philanthropy has moved past one-time donations. It’s now a more structured approach, where giving is tied to personal values, long-term goals, and wise financial planning. For many donors, it’s a way to engender meaningful change while making the most of available tax benefits and estate strategies. 

Data shows that generosity is widespread among wealthy households. 85% of high-net-worth individuals donate to charity, compared to just over 40% of the general population. On a global scale, ultra-high-net-worth philanthropy is a major driver of impact. UHNW (Ultra-High-Net-Worth) donors contributed $190 billion in 2022. This accounts for 38% of all individual giving worldwide. 

Strategic Benefits of Philanthropic Planning

Philanthropic planning allows donors to make a lasting impact while taking advantage of charitable tax strategies. A well-structured plan lowers income taxes, reduces capital gains, and limits estate tax exposure. For example, donating appreciated stock instead of cash provides a larger deduction. It also avoids capital gains tax. 

These strategies also connect to long-term wealth transfer goals. As the Great Wealth Transfer continues, many families are using charitable giving to pass on values and assets. This approach ensures that generosity becomes part of the family legacy and not just a one-off thing. 

Tax policy plays a significant role, too. After the 2017 Tax Cuts and Jobs Act reduced incentives for charitable donations, giving dropped by about $21 billion in 2018, with about 23 million households changing to the standard deduction. 

This makes it even more valuable to work with a knowledgeable financial advisor. They can guide you toward tax optimization opportunities and strategies that keep your giving impactful for years to come. 

Core Charitable Giving Vehicles

There are several ways to structure charitable giving, each with its own benefits and considerations. Understanding the difference ensures that you choose the approach that suits you best. Two of the most common options are donor-advised funds and private foundations, along with setting up a charitable trust. 

Donor-Advised Funds (DAFs)

Donor-advised funds are one of the fastest-growing charitable tools. You contribute assets (i.e., cash, stock, or other investments) to the fund and take an immediate tax reduction. Then, you recommend grants to charities over time. Contributions are tax-deductible up to certain limits. Strategies like “bunching” multiple years’ donations into one year can maximize deductions. 

DAFs also offer flexibility, the option for anonymous giving, and an easy way to involve family members in long-term charitable planning. In 2022, contributions to DAFs reached $85.5 billion, with grants totaling $52 billion, and both have more than doubled over the past five years. They’re also beneficial for family succession planning because they allow charitable intent to continue over generations. 

Private Foundations

A private foundation is a nonprofit set up and funded by an individual, family, or corporation. It offers more control over how funds are invested and distributed, but it has higher setup and administrative costs. Foundations can employ family members and aid a wide range of charitable pursuits to create a long-lasting legacy. 

Foundations must distribute at least 5% of their assets annually to qualified charities. They must also pay a small excise tax on investment income. They’re ideal for donors who desire complete oversight and are prepared for the recordkeeping and compliance requirements that come with it. 

Learn more about foundation strategies through our foundations and endowments consulting services.

How to Set Up a Charitable Trust

A charitable trust is a legal arrangement that holds and manages assets for the benefit of one or more charities. It can be set up as a stand-alone vehicle or alongside other giving tools like DAFs or foundations. 

The setup process involves drafting legal documents, naming beneficiaries, and ensuring compliance with IRS requirements. Charitable trusts can be irrevocable, meaning you can’t change them once established. This grants certain tax advantages but reduces flexibility. For many, the trade-off is worth it because charitable trusts can be customized to meet specific giving goals and timelines. 

Charitable Remainder Trusts: Income + Impact

A charitable remainder trust (CRT) lets you give to charity while receiving an income stream during your lifetime or for a set number of years. It’s a way to combine philanthropy with financial planning, offering both tax benefits and long-term impact. 

What Are CRTs + Tax Benefits?

A charitable remainder trust is an irrevocable trust that provides you, or other named beneficiaries, with income every year. When the trust term ends, the remaining assets go to one or more charities you choose. 

The benefits can be significant:

• Charitable trust benefits include an immediate income tax deduction based on the value of the eventual gift.
• You can defer capital gains taxes by contributing appreciated assets instead of selling them first. 
• The trust reduces the taxable value of your estate.

CRTs are irrevocable, so they work best when you’re sure about your giving plans. They’re often a good fit for people with highly appreciated assets who want to secure income while supporting a cause.

CRATs vs. CRUTs: Which is Right for You?

There are two main types of charitable remainder trusts:

• CRAT (Charitable Remainder Annuity Trust): Pays a fixed income amount each year, making it predictable but inflexible. No additional contributions can be made after it’s set up.
• CRUT (Charitable Remainder Unitrust): Pays a set percentage of the trust’s value each year, which changes with market performance and allows future contributions. 

Charitable Lead Trusts and Estate Strategy

A charitable lead trust (CLT) flips the structure of a CRT. Instead of receiving income first, the charity gets the income stream for a set term. When that term ends, the remaining assets pass to your heirs or back to you, depending on the trust type. CLTs reduce estate taxes, make a meaningful impact during your lifetime, and keep more wealth in the family. 

Grantor vs. Non-Grantor CLTs

CLTs can be designated as grantor or non-grantor. The primary difference comes down to who benefits from the tax deduction and who must pay taxes on the trust’s income:

• Grantor Charitable Lead Trust: You, as the grantor, receive an immediate income tax deduction for the present value of the income stream going to the charity. However, you must also pay income taxes on the trust’s earnings every year. This option works well in a high-income year when the deduction offsets other taxable income. 
• Non-Grantor Charitable Lead Trust: The trust itself pays the income taxes, and there’s no upfront deduction for you. Instead, the value of the assets transferred to heirs at the end of the trust term might be reduced for estate tax purposes. This structure is often chosen for long-term estate planning. 

Emerging Trends in Philanthropy 

Philanthropy is changing, with donors looking for ways to make their giving more impactful and connected to their values. One major shift is the rise of impact investing. This means individuals put money into companies, funds, or projects that aim to generate both financial returns and measurable social or environmental benefits. 

Technology is also changing the way people give. New tools make it easier to research charities, track how funds are used, and see real-time results. This data-driven approach gives donors more confidence that their contributions are actually meaningful. 

Another growing movement is collective giving through “giving circles” or pooled funds. In these groups, donors combine their resources, often focusing on a specific cause or community. This creates a larger, more visible impact than individual donations alone. 

Tax-Efficient Giving Strategies

Giving to charity is even more rewarding when it’s done in a way that maximizes tax benefits. From donating appreciated assets to using retirement accounts, these tax-efficient giving and planned giving strategies increase your impact without raising out-of-pocket costs.

Donating Appreciated Assets + Timing Strategies

Donating stock or other appreciated assets instead of cash is a decisive move. Giving shares directly to a qualified charity means you avoid paying capital gains tax on the increase in value while still receiving a charitable deduction for the fair market value. 

Timing is also key. As noted above, bunching donations into a single high-income tax year can increase the value of your deduction. For example, if you plan to give $10,000 annually for three years, donating $30,000 in one year could make it easier to itemize deductions instead of taking the standard deduction. This approach turns tax-deductible donations into a more strategic part of your financial plan. 

Qualified Charitable Donations (QCDs)

If you’re age 70½ or older, a QCD allows you to transfer money directly from your IRA to a qualified charity. The amount you donate counts toward your Required Minimum Distribution (RMDs) but isn’t included in your taxable income. 

QCDs are a wise choice for retirees who want to reduce taxable income while supporting causes they care about. They’re limited to $100,000 per person per year, but couples with separate IRAs each make their own QCD.

Building a Sustainable Giving Strategy

Creating a lasting giving plan means setting up the right structure, team, and oversight. Many donors work with an estate lawyer, tax advisor, and wealth manager to coordinate their wealth management philanthropy approach. This ensures their plan is fruitful over the long term. 

Compliance is an integral part of the process. This includes annual IRS filings, public disclosures, and, in some instances, audits. Focusing on philanthropic due diligence (i.e., researching causes before committing funds) also ensures your contributions are used as intended.

Sustainable giving often includes preparing for the next generation to take part. This may mean involving family members in grant decisions or creating opportunities for them to learn about the causes you care about. With precise planning, your charitable impact can continue for decades. 

Need guidance on integrating giving into your broader estate plan? Explore our trust and estate planning services. 

Bringing It All Together: Making Your Giving Count

Meaningful charitable planning turns generosity into a lasting legacy. Are you using donor-advised funds, charitable trusts, or direct gifts? The right approach maximizes your impact while taking advantage of available tax benefits. 

Key Takeaways:

• Structured giving through charitable giving strategies benefits both the causes you care about and your financial plan.
• Tools such as DAFs, foundations, and charitable trusts each offer unique benefits, depending on your goals.
• Tax-aware strategies, like donating appreciated assets or using QCDs, make your giving go further.
• Involving a family in your philanthropy carries your values into future generations. 
• Staying informed about trends like impact investing keeps your approach relevant.

Action Items:

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Ready to make your giving more meaningful? Connect with our team to explore personalized charitable giving strategies that reflect your values and leave an impression now and in the future. 

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FAQs

How much does it cost to set up a charitable remainder trust?

Setting up a charitable remainder trust typically costs between $3,000 and $10,000 in legal and administrative fees, depending on the complexity of the trust and the assets involved. Ongoing costs—like investment management and tax filings—can add several hundred to a few thousand dollars per year. Working with an experienced advisor can help ensure the costs are justified by the long-term tax and philanthropic benefits.

What happens if a charitable remainder trust runs out of money?

If a CRT’s investments underperform or its distributions are too aggressive, the trust could be depleted before the term ends. When that happens, income payments to beneficiaries may stop early, and the charity may receive little or nothing. This risk highlights the importance of proper planning, realistic payout rates, and professional trust management.

Can a 501(c)(3) be a trust?

Yes, a 501(c)(3) can be set up as a trust. In fact, many charitable organizations—including private foundations and charitable remainder trusts—are structured as trusts and still qualify for 501(c)(3) tax-exempt status. To qualify, the trust must be organized and operated exclusively for charitable purposes and meet all IRS requirements. 

Can I create my own charitable trust?

Yes, you can create your own charitable trust. You'll need to work with an attorney to draft the trust document, choose the type of trust (such as a charitable remainder or lead trust), name the beneficiaries, and ensure it complies with IRS rules. While it requires planning and legal setup, a personal charitable trust gives you control over how your assets are used to support the causes you care about. 

What is the difference between a charitable trust and a private trust?

A charitable trust is created to support public causes or nonprofit organizations, while a private trust is designed to benefit specific individuals or families. Charitable trusts often qualify for tax advantages and must meet IRS guidelines, whereas private trusts focus on estate planning, asset protection, or wealth transfer without the same public benefit requirements. 

Can a family trust make charitable donations?

Yes, a family trust can make charitable donations, but only if allowed by the trust’s terms. The trustee must ensure that any gifts align with the trust’s purpose and fiduciary duties. Donations may not qualify for the same tax benefits as those made through a dedicated charitable vehicle like a charitable trust or donor-advised fund. 

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