What’s the difference between charitable trusts and foundations?

What’s the difference between charitable trusts and foundations?

On Behalf of | Dec 1, 2022 | Charitable Giving, Tax Planning

If you are planning your New York estate and are trying to decide between a charitable trust and a foundation, it may help to review their key similarities and differences. Each option has its own unique benefits and drawbacks that may apply differently to you depending on your situation.

Foundations tend to be simpler

Foundations are private nonprofit organizations created to serve charitable causes. They may be funded by businesses, individuals or families.

Funding for private foundations may come in the form of real estate, securities or cash along with a variety of other types of assets. The founders also transfer ownership of their assets to the foundation in this process.

To outline the private foundation’s mission and how it intends to use the assets, a foundation charter is written. Its activities are then overseen by a board of directors. The foundation’s assets are usually used to fund grants that go to other nonprofit organizations.

Relative to charitable trusts, foundations have less red tape and more potential tax advantages. These are two of the main reasons why many prefer this tax planning option.

You might be able to save money by going with a foundation, but you should also prepare to potentially pay an excise tax. This is based on the net income made from your investments.

Charitable trusts offer privacy

When a grantor titles certain assets or property to a trust, a charitable trust can be created if the purposes are exclusively charitable. A particular group of people is often chosen to be the designated beneficiaries of the trust, such as veterans.

A charitable trust differs from a foundation because you don’t have to file any documents with the government. This is why some people opt for them instead of a foundation since this allows for more privacy.