What Is a Split Trust?
A split trust, or split-interest trust, is a form of trust account that has both charitable and non-charitable beneficiaries. This gives flexibility to individuals who want to open a trust but have multiple categories of interests that they would like to aid through the trust. For instance, a couple that would like to use a trust to benefit both their children and a favorite charity would not need to create separate trusts to handle the assets, using a split trust instead.
A trust is formed when assets of some kind are deposited into an account and a trustee is named to administer the assets. The previous owner of the assets relinquishes control of the assets, putting them in control of the trust and the trustee, who is bound to manage the assets according to the agreement that formed the trust. A trust has listed beneficiaries who receive distributions of the assets as dictated by the agreement. Beneficiaries can be individuals, organizations or both. Split trusts provide donors with differing options for how to handle the distribution in a way that matches their specific plans for the assets.
Charitable Remainder Trusts
Two types of split trusts are designed to make adequate distributions to non-charitable beneficiaries the priority, while still providing funding for some dedicated charitable beneficiaries. A charitable remainder annuity trust sends distributions to non-charitable beneficiaries in fixed payments for a scheduled period of time. Following those payments, all of the remaining assets in the trust are distributed to a chosen charity. A charitable remainder unitrust is similar, except that non-charitable beneficiaries receive a designated percentage of the trust's fair market value for a set time period and then the remaining assets are distributed to any charitable beneficiaries.
Charitable Lead Trusts
In contrast to the two types of charitable remainder trusts, charitable lead trusts work to make distributions to the charitable beneficiaries the foremost goal and the non-charitable beneficiaries wait to receive assets. It resembles a charitable remainder annuity trust, except in reverse. Designated charitable organizations receive regular distributions of assets from the trust at routine, scheduled intervals for a prescribed time period. Once the organizations have received the predetermined number of donations, the trust stops sending distributions to the organization and provides the remaining assets to the non-charitable beneficiaries.
Pooled Income Funds
A pooled income fund represents a departure from the other types of split trusts because the fund itself is owned by the charitable organization that benefits from it. Pooled income funds are trusts that enable donors to pool their donations into an investment fund. The donors receive distributions from the fund's income on a regular basis based on the size of their investments, meaning that the donors themselves are the beneficiaries of the trust. When donors die, their share of the fund is distributed to the charity as a donation. This arrangement allows for donors to enjoy investment income throughout their lives while ultimately benefiting a preferred charity.
Tom Gresham is a freelance writer and public relations specialist who has been writing professionally since 1999. His articles have appeared in "The Washington Post," "Virginia Magazine," "Vermont Magazine," "Adirondack Life" and the "Southern Arts Journal," among other publications. He graduated from the University of Virginia.