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Common mistakes when setting up a charitable remainder trust

On Behalf of | May 10, 2024 | Trusts |

Setting up a charitable remainder trust (CRT) is a generous way to give back, but it requires careful handling to avoid common pitfalls that could complicate your intentions or undermine the trust’s effectiveness. There are crucial errors to avoid to ensure your CRT achieves its goals and complies with legal standards.

Lack of clear objectives

A big mistake in setting up a CRT is not having clear goals. Without specific objectives, it’s hard to know what direction the trust should take and how successful it is. It’s important to know exactly what you want the CRT to do, whether it’s providing scholarships, supporting research, or helping a community. Clear goals help guide the trust’s actions and attract donors who support its mission.

Poor management structure

How well a CRT works largely depends on its management. It’s important to choose the right trustees and clearly define their roles and responsibilities. Trustees should be picked for their expertise, dedication to the trust’s goals, and ability to manage funds effectively. Also, if trustees don’t meet regularly or communicate poorly, it can lead to bad management and inefficiency.

Failing to plan for sustainability

Many CRTs start with a strong vision but fail without a plan for the long term. Planning for the future involves strategies for fundraising, managing investments, and budgeting. Without a plan for sustainability, a CRT may struggle to keep running or to increase its impact over time.

Ignoring tax compliance and reporting requirements

CRTs get significant tax benefits, but these come with strict rules for compliance and reporting. Ignoring these rules can lead to severe penalties and risk the trust’s tax-exempt status. It’s important to understand tax obligations from the start and make sure to keep detailed records and report regularly to tax authorities.

Knowledge empowers better decisions

By avoiding these common mistakes, you can ensure that your charitable remainder trust not only complies with legal requirements but is also set up for success and longevity.