The basic structure and operation of charitable trusts is relatively simple. The donor creates an irrevocable trust and transfers cash or other property to it. The trust has both charitable and non-charitable beneficiaries, and the benefits of the trust are divided between an income interest and a remainder interest. For a period of time chosen by the donor, income payments are made to the trusts income beneficiary(s), and at the end of the income period, the trust assets are transferred to the remainder beneficiary(s).
In the case of a charitable lead trust, the income payments are made to the charitable beneficiary(s), and at the end of the income period, the trust assets are transferred to the non-charitable beneficiaries (e.g., the donors children).
Under a charitable remainder trust, the income payments are made to the non-charitable beneficiary(s) (usually the donor), and at the end of the income period, the trust assets are transferred to the charitable beneficiary(s).
The income payments can be a stated percentage of the initial value of the trust assets, in which case the trust is called an annuity trust (a charitable lead annuity trust [CLAT], or charitable remainder annuity trust [CRAT]). Or, the income payments can be a stated percentage of the current value of the trust assets, in which case the trust is a unitrust (a charitable lead unitrust [CLUT], or charitable remainder unitrust [CRUT]).
