Can You Make Money from a Charitable Trust? Here’s How It Works

Ever heard someone say you can 'make money' with a charitable trust and thought it sounded too good to be true? Charitable trusts aren’t just for billionaires or old-school philanthropists—regular people use them to do good and get a few perks along the way. But the way they help you make money isn’t always what you expect.

Here’s the real deal: a charitable trust usually works by taking stuff you own—like money, stocks, or even a building—and putting it into a trust managed by someone you choose. Depending on the type of charitable trust, you (or someone you pick) might get income from the trust for a certain period. Then, after that time is up, whatever’s left goes to charity. Sounds pretty clever, right?

The most common setup is called a charitable remainder trust. People use it to get an income stream (like yearly payments) for themselves or their family, often for 10-20 years, or even for life. After that, the rest of the assets go to the charity you picked at the start. It’s honestly a win-win for those who want to mix giving with smart financial planning.

Charitable Trusts: The Basics

Charitable trusts are special legal setups that let you give to charity, while hanging onto certain benefits for yourself or your family. Forget the reputation that these are only for the mega-rich; even folks with a couple of investment accounts or a rental property can set up a charitable trust.

At its core, a charitable trust is an arrangement where you transfer assets—this could be cash, stocks, or real estate—into a trust. An appointed trustee manages those assets. For a lot of people, the main draw is that you can get tax perks, ongoing income, and eventually send a big chunk to charity. Here’s a straightforward breakdown of how it works:

  • You pick assets to move into the trust.
  • You decide who the income beneficiary is (this could be you, your spouse, or someone else).
  • You pick which charity (or charities) gets the remaining assets later.
  • You outline how you want the income to be paid—either for life or a set number of years.

There are two main types you’ll hear about:

  • Charitable remainder trust (CRT): Pays income to you first, then gives the rest to charity.
  • Charitable lead trust (CLT): Flips it—the charity gets paid first, and after a number of years, your chosen folks (like your kids) get what’s left.

Here’s a quick look at who often uses these:

  • People wanting to cut down on capital gains taxes when selling valuable assets.
  • Families who want a steady income stream plus a charity legacy.
  • Folks planning their estates to pass more on to family, while still doing some good.

If you like numbers, check out this table showing just how much is moved into charitable trusts every year in the U.S.:

YearTotal Value of Charitable Trusts Created (USD)
2022$5.3 billion
2023$5.8 billion
2024$6.1 billion

All that money is proof these trusts are more common—and more useful—than a lot of people think.

How Charitable Trusts Generate Income

Here’s what everyone wants to know: is it really possible to pull in an income from a charitable trust? The short answer is yes—if you set it up right. When you move assets like cash, stocks, or property into a charitable trust, the trust itself can start earning income. This income gets paid out to you, your family, or whomever you pick, all following the rules you put in place.

The most popular tool here is the charitable remainder trust (CRT). Let’s break down how CRTs put cash in your pocket:

  • You move assets into the trust (often stuff that’s jumped in value, like stocks or real estate).
  • The trust sells those assets (skipping much of the capital gains taxes you’d normally owe).
  • It invests the money, usually in a mix of stocks, bonds, or real estate to keep earning.
  • You or whoever you pick get paid from the earnings—usually for life, or for a set number of years.

This income shows up as regular payments, which you can use however you want. Some people use this for retirement, or to help support family members.

If you’re eyeing the numbers, payouts are usually between 5% and 8% of the trust’s value each year. Here’s a quick table to put this in perspective:

Trust ValuePayout RateAnnual Income
$500,0005%$25,000
$1,000,0006%$60,000
$2,000,0007%$140,000

If you pick a higher payout rate, your annual income goes up, but the amount that eventually goes to charity drops. That’s the main tradeoff—so if you’re doing this for both money and giving, find your sweet spot.

One thing to remember: most trusts set a floor and a ceiling for payout percentages to stay within IRS rules. This keeps the whole structure legal and your tax perks safe.

Tax Perks and Pitfalls

Tax Perks and Pitfalls

One of the biggest reasons people look into a charitable trust is for the tax breaks, but there are some downsides you absolutely shouldn’t ignore. Here’s how the tax picture shakes out:

First, when you transfer assets—like cash, stocks, or real estate—into a charitable trust, the IRS often gives you a charitable deduction on your taxes for the year you make the transfer. The exact amount depends on the trust type, the value of the gift, and how much the charity is expected to get at the end. In practical terms, say you put $100,000 into a charitable remainder trust; if the math says the charity will eventually get $60,000, that’s the general range for your deduction (within IRS limits).

Another big perk: when you move things like stock into a charitable trust and the trust sells it later, you can avoid immediate capital gains tax. That’s a huge bonus if your assets have grown in value. Instead of losing a chunk to taxes at the sale, the whole amount can work for you in the trust, creating income down the road.

But here’s the flip side. Once assets go into the trust, they’re no longer really yours. If you change your mind later, you can’t get them back. Also, the income you get from the trust isn’t always tax-free. Depending on the trust’s investments, you might still owe income or capital gains taxes on what you receive every year. The trust itself files its own tax return, and the tax rules are strict. If the trust messes up on payments or paperwork, the IRS might hit it with penalties.

You also have to follow a bunch of technical IRS rules. For example, you can’t use a charitable remainder trust to give all the money to your cousin and leave nothing for charity. The government checks that the charity will actually get a chunk (at least 10% of the initial value) in the end. If not, your deduction could be denied.

  • Charitable deduction is based on what the charity will receive, not the whole amount you transfer.
  • You avoid up-front capital gains tax if appreciated assets are sold within the trust.
  • Trust income sent back to you is taxable, depending on where it comes from and how the trust is managed.
  • IRS has strict legal paperwork, reporting, and minimum payout requirements.

If you’re serious about using a charitable trust for tax reasons, talk to someone who’s set up dozens before—not just a general lawyer or accountant. It’s easy to mess up, even for smart people. Get pro help, keep receipts, and save all the paperwork for every step.

What to Expect If You Set One Up

Setting up a charitable trust sounds a bit intimidating, but once you get the basics, it’s more straightforward than it looks. Here’s what usually happens after you decide to go for it.

First, you’ll sit down with an attorney who knows their stuff. You’ll figure out what you want to put into the trust—maybe some cash, stocks, or real estate. You’ll also pick who will run it (the trustee), who gets the income (usually yourself or family), for how long, and which charity will benefit when it’s over.

Once the trust is officially set up, the trustee manages everything. If you’ve chosen a charitable remainder trust, you’ll start seeing those income payments, which are based on either a fixed amount or a set percentage of what your trust assets are worth. The IRS says you need to make sure the charity will get at least 10% of the trust’s value when your term is up—otherwise, the whole thing doesn’t count as a charitable trust.

The process goes like this:

  • Sign legal documents to create the trust
  • Transfer assets into the trust (these are now out of your name)
  • Trustee manages investments and handles payouts
  • You (or whoever you picked) get the income per the trust’s rules
  • Charity receives the leftovers after the set period

Expect some fees—attorney costs for setup, and sometimes ongoing management charges. It’s not free money, but the benefits can outweigh these costs. For example, a 2023 survey found the average setup cost for a charitable remainder trust in the US was about $5,000, and annual management fees often range from 1% to 1.5% of trust assets.

Step What Happens
Setup Lawyer drafts the trust, you fund it
Management Trustee invests, pays income annually or quarterly
Distribution When term ends, charity gets what’s left

Another thing to keep in mind is taxes. You get a nice deduction upfront based on the value the charity will eventually get—hello, lower tax bill! Plus, if you put in things like stock that’s gone up in value, you skip paying capital gains tax when the trust sells it. That’s money you keep working for you.

So, the main takeaways? There’s paperwork, some legal fees, and a bit of patience required. But for those who want to do some good and get income or a tax break, setting up a charitable trust can pay off both for your favorite cause and your bank account.

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