Explaining Trusts & Foundations
Trusts & Foundations! Charitable purpose! Commercial purposes!
Business To Charity Uses Explained
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Our resourceful lawyers can provide unique solutions and practical advice on ownership and succession planning based on decades of specialisation and experience. The strength and diversity of our litigation team means we can also help avoid or resolve disputes, should the need arise. For private clients, family businesses, charities or trustees, Goldman Senior Lawyers can provide the expert advice and the realistic choices you need, on every aspect of trusts and foundations.
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Our Services Include:
- Commercial trusts
- Private wealth trusts
- Private clients
- Trust litigation
- Private Trust Companies (PTC)
The trust services we provide innovatively create ways to grow and protect wealth while maintaining financial stability, privacy and discretion. We review the needs and objectives of the client to facilitate the end goals by using a suitable trust structure.
What is a Trust?
A trust is a legal arrangement pursuant to which one person (the “grantor” or “settlor”) entrusts assets to another person or organization (the “trustee”) to manage for the benefit of others (the “beneficiaries”). Now, this is an oversimplified definition, and with certain types of trusts (such as the revocable living trust), a single person can serve as grantor, trustee, and beneficiary; but, this provides a good foundation for our discussion of charitable trusts.
Under the right circumstances, establishing a charitable trust can have numerous benefits. Some of these benefits include:
Tax Savings. By transferring assets to a charitable trust, you can often avoid income, capital gains, and estate taxes that would otherwise need to be paid by you or your estate.
Asset Protection. Since assets that you transfer to a trust are no longer considered your property, establishing a trust can help shield your charitable gift from the risk of loss, should you face a lawsuit or incur another substantial liability.
Enhanced Certainty. Most forms of trusts are recognized by state and federal courts around the country, and you can use your trust documents to establish clear rules around your charitable donation. As a result, when you use a trust for your charitable giving, you can feel confident that your final wishes will be carried through.
Of course, the trust structure has certain limitations as well. Among them, when establishing a trust for charitable purposes, the trust will often need to be irrevocable. This means that you will not be able to pull assets back out of the trust should you need to do so in the future. There are costs involved with establishing a trust as well, though these costs will often be offset by the tax benefits involved.
What is a Foundation?
A private foundation may be a tax-exempt organization generally established as either a trust or corporation under state law. Management responsibility rests with directors or trustees, and one of the main distinguishing factors from stand-alone charitable trusts is that private foundations can accept contributions from multiple donors. As a result, private foundations are often used by families seeking to establish a lasting charitable legacy, allowing for family members’ gifts to be pooled and then distributed to outside organizations (or used in-house) at the direction of the foundation.
However, the founders also have the ability to establish permissible donees and assert additional controls over the foundation’s operations as well, making foundations particularly attractive to those who have altruistic goals that they wish for their loved ones to continue to pursue after their death. As a result, whether your hope is to help finance a major international charity, to establish an enduring support fund for a local cause or organization, or even to establish your own operating charitable entity, you can use a private foundation to achieve your goals.
Like charitable trusts, private foundations can offer significant tax benefits for donors and their estates. Donors also have the option (also similar to trusts) to make contributions during their lifetimes, at death, or both.
We understand that requirements are different for each client and we draw on our in-house expertise to meet and exceed client expectations.
We help individuals plan their affairs according to their present and future wishes. We structure Personal Trusts that administer your assets in a manner so as to continually provide for future generations.
Our expertise and careful preparation will help an appropriately funded living trust avoid probate and protect an individual’s assets from any other claims outside of the trust instrument as well as protecting against the state controlling the distribution.
We understand the need to secure the financial objectives and our client relationships are based on personalized attention, integrity and teamwork. We readily work in close partnership with clients, client’s family members and their advisors.
We recognize that corporate institutions generate a wealth of different assets and protecting them is a priority for good business. We provide a full range of trustee services for all corporate needs, including:
- Scheme registration
- Establishing compliance plans
- Monitoring of compliance
- Oversight of investment decisions
- Managing adherence to legislative and regulatory requirements
- Custody services
- Appointment and monitoring of external service providers
Employee Share Option Plans
A further service we offer is employee share ownership plans which are a popular corporate trust arrangement designed to motivate employees through equity ownership in the company. We understand the value of such schemes to our corporate clients as an effective tool for employee retention, while the employer stock has also appreciated over the years until date of employee retirement.
Types of Charitable Trusts
The two most common forms of charitable trusts are: (i) the “charitable remainder trust,” and (ii) the “charitable lead trust.”
1. Charitable Remainder Trust
With a charitable remainder trust, the grantor establishes the trust and names a specific charitable organization as the trustee.
2. Charitable Lead Trust
A charitable lead trust operates much the opposite of a charitable remainder trust. With a charitable lead trust, the charity receives income payments for a period of years or the grantor’s lifetime, and then upon the grantor’s death the trust assets transfer to named non-charitable beneficiaries. There is also the option for the trust assets to be redistributed to the grantor prior to death.
Depending upon the grantor’s goals, a charitable lead trust can be structured as any of the following:
Types of Private Foundations
Private foundations can generally fall into either one of two categories: (i) a non-operating private foundation, or (ii) an operating private foundation.
1. Non-Operating Private Foundation
With a non-operating private foundation, the foundation exists for the purpose of making grants to other nonprofit charitable organizations. Essentially, it operates as an endowment. The foundation may either donate income from its investment activities, donate from its principal, or both; and, as noted above, the founders have the option of limiting the universe of permissible donees – even down to a single charitable organization.
2. Operating Private Foundation
An operating private foundation, by contrast, takes on the role of an exempt charitable organization. Rather than donating its contributions and income to an outside charity, the operating foundation takes on direct responsibility for fulfilling its charitable goals. Many museums, educational institutions, and community centres are operating private foundations, though these foundations can be used for a wide range of other purposes as well.
Choosing Between Charitable Trusts and Private Foundations
Whether it makes sense for you to establish a charitable trust, private foundation, or take another approach to achieving your altruistic goals requires careful consideration of the tax, charitable, and other benefits and limitations each option entails. Forming a charitable trust or private foundation is a major decision, and one that can have an impact on your family and community for generations to come.
You will need to thoroughly weigh your options with the help of experienced advisors, and you will need to be sure that your trust’s or foundation’s organizational documents accurately reflect your charitable and estate planning goals. To learn more, we invite you to schedule an initial estate planning consultation with one of our Senior Lawyers.
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