This type of trust is basically the opposite of the Charitable Remainder Trust. In this type of trust, the charity will receive the income before the beneficiaries that you have designated. One of the main reasons for setting-up this type of trust is to substantially reduce the gift and estate taxes.
This trust may be appropriate for you if: (1) you have a charitable intent; (2) you want to increase your family’s net worth; (3) you want to reduce gift and estate taxes; and (4) you don’t need any additional income.
You establish a charitable trust and put $50,000 into the trust. When you setup the trust you determined that the trust should last for 10 years. The charity that you selected will receive annual payments for 10 years. The trust earns $5,000 per-year which is given to the charity. Once the term expires, your beneficiaries will receive the remaining assets. The benefit to your beneficiaries lies in the fact that the value of the gift is reduced by the value of the income paid to the charity over the 10 years ($50,000). The net result is that the beneficiaries will receive the $50,000 without incurring any gift tax.