Charitable trust - Financial definition

In the context of finance, a charitable trust is a specific legal arrangement designed to hold and manage assets on behalf of charitable causes, ensuring that the income or principal benefits a designated charitable organization or purpose. These trusts can take various forms, such as charitable remainder trusts (CRTs) or charitable lead trusts (CLTs), each with unique tax advantages and financial implications for both donors and beneficiaries.

Charitable trusts are commonly used in estate planning and philanthropy to achieve long-term charitable goals while also potentially providing tax benefits to donors. Practical examples include setting up a CRT to provide income to the donor or other beneficiaries for a period, after which the remaining assets go to the charity, or a CLT where the charity receives income for a certain term, after which the remaining assets revert to the donor's heirs.