A charitable trust—also known as a public trust—is a trust created for the benefit of a specific charity or charities. Charitable trusts often provide favorable tax treatment to the person funding the trust—known as the grantor, settlor, or donor.

There are two types of charitable trusts: charitable lead trusts (CLT) and charitable remainder trusts (CRT). A charitable lead trust is an irrevocable trust made in favor of a charity that allows the charity to receive income from the trust’s assets for a specified period, and when that period expires the property returns or reverts to the settlor’s estate.

A charitable remainder trust is a trust that includes or is funded with assets designated for a charitable purpose that are donated to the trust after the expiration of the grantor or settlor’s life estate or intermediate estate in the assets (the right to use the assets for the lifetime of the person who made the trust, or for some specified period).

A grantor, settlor, or donor may fund a charitable remainder trust with assets that have appreciated in value over time—and because the grantor is ultimately donating the assets to the charity the grantor does not incur capital gains taxes on the appreciated assets, may take a charitable income tax deduction, and may reduce estate taxes—while continuing to receive income or enjoy the use of the donated trust assets during the grantor’s lifetime or other specified period.

A charitable trust described in Internal Revenue Code section 4947(a)(1) is a trust that is not tax exempt; in which all the unexpired interests are devoted to one or more charitable purposes; and for which a charitable contribution deduction was allowed under a specific section of the Internal Revenue Code. A charitable trust is treated as a private foundation unless it meets the requirements for one of the exclusions that classifies it as a public charity.

Thus, a charitable trust is subject to the private foundation excise tax provisions and the other provisions that apply to exempt private foundations, including termination requirements and governing instrument requirements. But a charitable trust is not treated as a charitable organization for purposes of exemption from tax—and the trust is subject to the excise tax on its investment income under the rules that apply to taxable foundations rather than those that apply to tax-exempt foundations.

In West Virginia (WV), a charitable trust is a legal arrangement designed to benefit a specific charity or charities. There are two main types of charitable trusts: Charitable Lead Trusts (CLTs) and Charitable Remainder Trusts (CRTs). A CLT provides income to a charity for a set period, after which the remaining assets may revert to the grantor's estate. A CRT allows the grantor to receive income or use the assets during their lifetime, with the remainder going to charity upon their death or after a specified period. These trusts offer tax advantages, such as avoiding capital gains taxes on appreciated assets, potential income tax deductions, and possible estate tax reductions. Under federal law, specifically Internal Revenue Code section 4947(a)(1), a charitable trust that is not tax-exempt and allows for a charitable contribution deduction is treated as a private foundation, subject to excise taxes on investment income and other regulations, unless it qualifies as a public charity. It's important for individuals in WV considering establishing a charitable trust to consult with an attorney to ensure compliance with both state and federal laws and to maximize the potential tax benefits.