Charitable Trust Planning: How And Why To Set One Up

A charitable trust can be a great way to support your favorite charitable organization while taking advantage of the tax benefits that a charitable trust can offer. A lot of people think that in order to set up a charitable trust you have to plan on giving a significant amount to one or more charities. In reality, it is the tax benefits that are often the driving factor in deciding to establish a charitable trust, and the charitable gift can actually be fairly minimal.

To understand charitable trusts, it is helpful to have an understanding of how trusts work in general. A trust is essentially just separating the legal ownership of an asset from the beneficial enjoyment of the asset. There are three main participants in any trust: the grantor, trustee, and beneficiary. The grantor establishes and contributes the assets to the trust. The trustee has legal ownership of the trust assets and a fiduciary duty to act in the best interest of the beneficiary. The beneficiary benefits from the trust assets but does not have the ability to control these assets. In some trusts the same individual may serve in more than one of these roles.

Charitable trusts are what are referred to as split interest trusts because the beneficial interest is split between a charitable beneficiary and one or more individual beneficiaries. There are two basic types of charitable trusts: a charitable remainder trust (CRT) and a charitable lead trust (CLT). A CRT provides a payment stream to an individual beneficiary for a specific term which can be a fixed number of years or can be for the individual beneficiary’s lifetime. CRTs are often set up with the grantor as the income beneficiary. At the end of the payment term, the remaining assets pass to the charitable beneficiary. A CLT is the opposite of a CRT and provides a payment stream to a charitable beneficiary for a specific number of years. At the end of the payment term, the remaining assets pass to one or more individual beneficiaries. CLTs can be set up with the grantor as the remainder beneficiary, but generally the beneficiary is someone else such as the grantor’s children or grandchildren.

The grantor can choose to pay the tax on the income generated by the trust assets (referred to as a grantor trust) or the trust itself can be responsible for these taxes. A trust must be treated as a grantor trust in order for the grantor to take a charitable income tax deduction on a portion of the assets contributed to the trust. The charitable deduction for a CLT is equal to the present value of the payments to the charity determined based on an expected rate of return published by the IRS each month known as the Section 7520 rate. Similarly, the income tax deduction for a CRT is equal to the present value of the charity’s remainder interest determined based on the same Section 7520 rate. Note that a higher Section 7520 rate provides a greater charitable deduction because it assumes the assets in the charitable trust will have a higher return and more will ultimately go to the charity.

CRTs and CLTs can also be structured so that the payment stream to the income beneficiary is a fixed dollar amount (referred to as an annuity trust), or a fixed percentage of the trust assets as of a specific date (referred to as a unitrust). Whether a charitable trust is structured as an annuity trust or unitrust is determined based on the goals of the grantor and whether the actual rate of return on the trust assets is anticipated to exceed the Section 7520 rate.

When Should You Consider A Charitable Remainder Trust (CRT)?

CRTs are often used in connection with the sale of an asset to avoid immediately having to recognize capital gains taxes. CRTs are generally structured as grantor trusts. The benefit of this structure is that the CRT itself is not subject to tax, so the trustee can sell the asset contributed by the grantor and the proceeds can be reinvested in a diversified portfolio within the trust. The capital gains tax is spread out and paid by the individual beneficiaries as they receive payments from the CRT during the payment term. In addition, the grantor receives a charitable deduction equal to the present value of the anticipated remainder interest that will pass to charity.

CRTs are often funded with low basis assets that the grantor would like to sell. This may be in connection with the anticipated sale of a closely held business or the desire to diversify a concentrated position. The CRT can sell these assets without paying tax and invest the proceeds from the sale in a diversified portfolio that aligns with the grantor’s goals without forcing the grantor to recognize tax immediately upon the sale.

As previously mentioned, the amount that must go to one or more charities can be fairly minimal. For a CRT, the remainder going to charity must be at least 10% of the initial net fair market value of the assets contributed to the trust. The IRS also requires that at least 5%, and generally no more than 50%, of the value of the trust be paid out to the income beneficiaries each year during the payment term. This means that most of the amount contributed to a CRT can ultimately come back to the grantor or the grantor’s designated beneficiaries while allowing the grantor to take advantage of the tax deferral benefits the CRT can offer.

When Should You Consider A Charitable Lead Trust (CLT)?

Like CRTs, CLTs can also be used to defer the recognition of capital gains tax but are more commonly used in connection with estate planning. An individual’s estate is subject to what is essentially a 40% federal estate tax on the value that exceeds the lifetime exemption. For 2023, the lifetime exemption is almost $12.92 million per person, or nearly $26 million for a married couple. For wealthy couples, a CLT can allow assets to be transferred without having to use their lifetime exemption. Because this strategy is typically used as an estate planning strategy, the trust is typically set up to pay the tax on any income generated by the trust assets. The grantor does not receive a charitable deduction, but the assets are removed from the grantor taxable estate which is the primary goal.

The charitable gift portion of a CLT is equal to the present value of the payments to the charitable beneficiary based on the Section 7520 rate. A charitable lead annuity trust (CLAT) can be structured so that the charity is expected to receive all the assets of the trust as part of the payment stream with nothing remaining for the individual beneficiaries. This is called a “zeroed out” CLAT and the present value of the payment stream going to the charity is deemed to be equal to the entire initial fair market value of the property contributed. If the trust can generate a rate of return on the assets in excess of the Section 7520 rate, then there will be assets remaining in the trust at the end of the charitable term which would pass to the individual beneficiaries free of estate tax. This strategy is typically used when the grantor anticipates that the rate of return on the trust assets will exceed the Section 7520 rate so that there will be assets remaining for the individual beneficiaries.


In the end, charitable trusts can offer significant tax benefits while allowing you the opportunity to support a charitable organization that you care about. If you are considering the sale of an asset, then a charitable trust could potentially be a good way to defer the income tax liability. A charitable trust may also be a great way to reduce both income tax and estate tax as part of your estate planning. As always, it is important to discuss these strategies with your advisors, estate planning attorney, as well as your CPA.

Adam Fuller Offers Thoughts on Charitable Giving

HB Principal Adam Fuller, CFA, CFP® offers thoughts on charitable giving in recent Atlanta Business Chronicle article.
Adam Fuller

Adam Fuller Offers Thoughts on Charitable Giving

HB Principal Adam Fuller, CFA, CFP® offers thoughts on charitable giving in recent Atlanta Business Chronicle article.

How Can I Help Those Impacted By COVID-19?

By: Kelsey Stone



As the world watches the health and economic impact of COVID-19, many are wondering what they can do to help. While there are many ways to assist in the battle against the virus and support those who have been directly impacted, below is a list of charities that are taking donations to help those that have been affected. This list includes charities on the national level, as well as organizations that are local to our headquarters office in Atlanta. This list does not capture all of the charities that are assisting and supporting those directly impacted, but can be used as a guide and starting point for those wanting to donate.


Organization Website Description
Atlanta Community Food Bank


Member of Feeding America. Works with nonprofit partners, including food pantries, community kitchens, childcare centers, night shelters and senior centers to distribute meals across metro Atlanta and north Georgia.
The CDC Foundation Helps fund medical supplies, increasing lab capacity, deploying emergency staffing to U.S. public health agencies, provides support in vulnerable communities, addressing health communication needs, boosting clinical research to improve health outcomes, building capacity and infrastructure for global response efforts, and more.
Feeding America


The nation’s largest hunger-relief organization through a network of food banks, pantries and meal programs.
First Responders First Providing essential equipment and protective gear to help frontline healthcare workers and their patients.
The Giving Kitchen


Giving Kitchen provides emergency assistance to food service workers through financial support and a network of community resources.


Providing medical supplies and equipment to hospitals in the U.S. and around the world.
Piedmont COVID-19 Infrastructure Fund



Goes towards areas of critical need, including drive-thru testing sites, reconfiguring labs for on-site COVID-19 testing, hospital modifications to increase ICU’s and equipment, technology and operating costs.
Atlanta Mission Atlanta Mission provides emergency shelter, rehab and recovery services, vocational training, services, and transitional housing. We serve more than 1,000 homeless men, women, and children every day.
HOPE Atlanta HOPE Atlanta provides the most comprehensive approach to tackling homelessness in the Atlanta region with housing, outreach, prevention and emergency services.

Charitable Giving with Donor Advised Funds

By: Todd Hall


The Tax Cuts and Jobs Act, which took effect in 2018 was a significant tax overhaul that has impacted the way that taxpayers give to charity. The new law significantly increased the standard deduction, which can reduce or even eliminate the tax benefit that some taxpayers get from annual donations to charity. Many taxpayers won’t collect the necessary deductions to surpass the new standard deduction threshold. And the elimination or reduction of many popular deductions may put itemization out of reach entirely.

One way to overcome this issue involves the use of a charitable vehicle called a Donor Advised Fund (DAF). DAFs have been around for many years, but they are now an even more valuable tool for many charitably minded taxpayers. Donors with DAFs can use a strategy called “bunching,” in which they fund a DAF with multiple years’ worth of charitable gifts in a single year in order to surpass the itemization threshold, and distribute cash to charities from the DAF over time. Some donors will only itemize deductions in the “bunching” years, and take the standard deduction in off-years (or “skip-years”). Bunching can also be beneficial if a donor has a year with abnormally high income (e.g. from the sale of a large asset or payout of a large bonus). Funding several years’ worth of charitable gifts in the high-income year will maximize tax benefits.

What is a DAF?

A DAF is a charitable account that allows a donor to:

1) “Pre-fund” future charitable gifts when it is advantageous for the donor, and

2) Make large or small grants to charities of the donor’s choice over any period of time. Any amount not granted right away can be invested and will grow tax-free.

The donor receives a charitable deduction for making contributions to the DAF account. This is generally done with appreciates securities when possible, but the account can be funded with cash or other assets as well. The donor can then make grants to virtually any 501(c)(3) IRS-qualified public charity – that means everything from the donor’s alma mater to the local church. Donors can even support international causes through a DAF.

How a DAF Works

A DAF is technically an account at a public charity that enters into an agreement with a donor. The agreement gives the donor the right to advise the fund on how the donor’s contributions will be invested and how grants to charities will be made. Because the DAF is technically an account at a public charity, contributions to the DAF are irrevocable, and qualify the donor for an immediate tax deduction (subject to the same Adjusted Gross Income limitations as other public charities).

Donors decide on their own fund name (e.g. The Jones Family Fund) and who will have authority to request grants from the account. During life, the donor (or the donor’s designee) can make ongoing, non-binding recommendations to the fund as to how much, when, and to which charities grants from the fund should be made. Additionally, the donor can advise on how contributions should be invested. The donor may suggest that, upon death, grants be made to charities named in his or her will, or the donor may designate a surviving family member(s) to recommend grants.

In order for gifts to a DAF to qualify for a charitable deduction, the gift must be irrevocable and technically the charity that holds the DAF account is not obligated to follow any of the donor’s suggestions — hence the name “donor-advised fund.” As a practical matter, though, the fund will generally follow a donor’s wishes.

See Figure 1 for an illustration of how DAFs work.

Some Additional Advantages of DAFs

Using a DAF to “pre-fund” future charitable gifts can have several advantages, including:

  • Simplified process for making multiple gifts – For example, if a donor has appreciated stock worth $5,000 and would like to make gifts of $500 each to 10 charities, paperwork is only needed once to transfer the stock to the DAF, and there is only one charitable gift to report for tax purposes. Grants can easily be processed online from the DAF to the desired charities.
  • Anonymity – Grants from DAFs are typically identified as being made from a specific donor’s account, but they can be made anonymously at the donor’s request.
  • Expert advice – Many charities that offer DAF accounts offer expert advice on grantmaking.

How to Establish a DAF

Donors can open a DAF at several organizations. Below are some common examples:

  • National low-cost options include:
    • Fidelity Charitable – a separate charitable entity affiliated with Fidelity Investments
    • Schwab Charitable – a separate charitable entity affiliated with Charles Schwab
  • Local community foundations – Usually community foundations will have specific expertise in local community needs and the charities established to meet those needs. Often they will provide additional support in connecting donors to charities in the community. Community foundations often charge higher fees than the national organizations in order to support these additional services. The Community Foundation for Greater Atlanta is an example. Many other large cities have similar organizations.
  • National and local religious charities – Like Community Foundations, religious charities have specific expertise in charities that support their religious philosophy or affiliation. Examples include:
    • National Christian Foundation
    • Jewish Federation of Greater Atlanta (or other local affiliates in various cities)

Other Important Details

There are fees associated with establishing and/or maintaining DAFs. Large national organizations generally charge between 0.10% and 0.60% of assets in the account, depending on the balance. Other administrative fees may also apply, though these are generally small. Charities that offer significant additional services such as community foundations and religiously affiliated organizations generally charge more. However, many donors view these higher fees as an additional charitable donation to help support causes they care about. There are also management fees charged for underlying investments that can vary significantly. With large enough account balances, HB can manage the account, which may enable you to choose investments with lower fees than the investment options for smaller accounts.

Some DAFs can accept non-cash assets other than securities, such as real estate, private alternative investments, or certain complex assets such as privately held company stock. Not all DAFs are equal in this regard, so you will want to plan ahead and work with your HB advisor if you plan to fund a DAF with non-cash assets other than publicly traded securities.

Robin Aiken

Tips For Charitable Giving

By: Robin Aiken


The end of the year is typically a popular time for charitable giving. For those of you that are charitably inclined, now would be a great time to consider making a charitable gift of appreciated stock given the run up we’ve had in the stock market since the beginning of 2019.

Why consider appreciated stock for a gift? Discuss with your advisor before writing a check to a charity. It usually makes sense to contribute appreciated stock to a charity if you own stocks that have appreciated in value and have been held by you for at least a year and a day. I hear many reasons why donors think this is a bad idea. The first one is “the charity does not want to deal with owning XYZ stock.” Unless a charity is very small, almost all of them are happy to take your direct stock gifts. Rest assured they are not going to hold your stock; they are likely going to sell it immediately as a tax-exempt charity and convert it to cash. Another excuse I hear is “but I really like XYZ stock and do not want to give it up or give up the dividend.” You do not have to give up your favorite stock – just take the cash that you were about to use to write a check to the charity and buy back the stock in the same amount on the day you gift it. You can keep owning that stock and receiving the dividends – but if you need to sell it for some reason later your taxable gain will not be as large.

Another gifting strategy to consider if you are over the age of 70.5 years old is to directly contribute your otherwise taxable required minimum distribution (RMD) from your IRA to a charity. Current laws allow this up to $100,000. This is an easy way to avoid taxation on the RMD and help your favorite charity.

What are other ways to be strategic about your giving? Donor Advised Funds are widely available at low cost custodians like Schwab or Fidelity or via local community foundations who offer expanded services to help donors. These are a way to “prepay” some of your future charitable giving in one year and get all of the tax benefit up front, something that matters even more now that the standard deduction is much higher. This can also be helpful if you happen to have a high income year when the charitable contributions are worth more in terms of tax savings. Let’s say you give $2,500 a year to your favorite charity and happen to earn a lot more income than usual this year. You could give $10,000 to a donor advised fund now and then ask the donor advised fund to give $2,500 a year to your favorite charity for the next four years. You get all of the tax deduction benefit this year (if your total deductions are high enough) while still making your routine gifts for the next four years.

Not every strategy works well for every individual. Figuring out whether to use your RMD or use a Donor Advised Fund or which stock to give are all things that your CPA and financial advisor can help you evaluate. Understanding your tax situation is very important if you are wealthier, because there are different rules for the deductibility of different types of gifts.

The most important tip of all is to step back and think about your values and why you are giving to begin with. If you have children think about getting them involved in the discussion so that they hear about your values and can begin to think about the importance of giving. Use online resources to check out the charities you are considering and think about how your gift will have an impact.

Christmas Kindness

Yesterday a couple of HBers volunteered at Christmas Kindness to help parents choose new coats, appliances, and toys for their family.