Can You Make Money from a Charitable Trust? Here’s What Actually Happens

People often ask if you can make money from a charitable trust. The short answer? Not directly-but you can benefit in ways that aren’t always obvious. A charitable trust isn’t a business. It’s a legal tool designed to give money to causes you care about, while offering tax perks and estate planning benefits. If you’re thinking of setting one up hoping to get rich, you’re on the wrong track. But if you want to do good, keep more of your wealth, and still support your family, it’s one of the smartest moves you can make.

What Is a Charitable Trust, Really?

A charitable trust is a legal arrangement where you transfer assets-like cash, stocks, real estate, or even a business interest-into a trust. The trust then pays out income to you or someone else for a set time, and after that, the rest goes to a charity. There are two main types: charitable remainder trusts (CRTs) and charitable lead trusts (CLTs).

In a CRT, you get paid first. Say you put $500,000 in a CRT. The trust might pay you 5% a year-$25,000-for life or 20 years. After that, whatever’s left goes to your chosen charity, like the Red Cross or a local food bank. In a CLT, the charity gets paid first, and then your heirs get the remainder. Both are structured to reduce your taxes and keep your assets out of probate.

It’s not a bank account you can withdraw from whenever you want. You can’t just take the money and buy a new car. The trust is bound by law to follow its terms. That’s what makes it trustworthy-and what keeps it from being a loophole for personal gain.

How Do You Benefit Financially?

You don’t get to pocket the full value of what you put in. But you do get three big financial perks:

1. Immediate tax deduction: When you fund a charitable trust, you get a deduction on your income tax for the estimated value of what will eventually go to charity. For example, if you put $1 million in a CRT and the IRS calculates that $600,000 will go to charity over time, you can deduct that $600,000-spread over several years if needed.
2. Capital gains tax avoidance: If you sell stocks that have doubled in value, you owe taxes on the profit. But if you put those stocks into a charitable trust, the trust sells them tax-free. You avoid the capital gains tax, and you still get income from the proceeds.
3. Estate tax reduction: Assets in a charitable trust aren’t part of your taxable estate. That means your heirs pay less in estate taxes when you pass away. For someone with a $5 million estate, that could mean saving hundreds of thousands.

These aren’t theoretical benefits. In 2024, the average donor who used a charitable remainder trust saved $187,000 in combined taxes over five years, according to data from the National Philanthropic Trust. That’s not pocket change. It’s real money that stays in your pocket instead of going to the IRS.

Can You Pay Yourself a Salary?

No. You can’t be the trustee and pay yourself a salary just because you set up the trust. Trustees are paid for their work, but only if they’re professionals-like lawyers or financial advisors. If you’re the donor and you’re also the trustee, you can’t pay yourself a fee. That’s considered self-dealing, and the IRS shuts it down fast.

But here’s the twist: you can be paid as income from the trust. In a CRT, you receive regular payments-like a pension. Those payments are taxed as ordinary income, capital gains, or tax-free return of principal, depending on how the trust earned the money. So yes, you get cash flow. But it’s not a salary. It’s structured income from the trust’s assets.

Think of it like an annuity. You don’t own the money. The trust does. You just get to live off it for a while.

Who Actually Uses Charitable Trusts?

They’re not for everyone. Most people who set them up have at least $500,000 in liquid assets and are in a high tax bracket. They’re often business owners, retirees with large investment portfolios, or professionals like doctors and lawyers who’ve built up wealth over decades.

One client I worked with in Brisbane sold his dental practice for $1.2 million. He had $800,000 in capital gains. Instead of paying $200,000 in taxes, he put the shares into a CRT. He got a $550,000 tax deduction, avoided the capital gains tax, and now gets $45,000 a year for life. When he dies, the remaining $600,000 goes to his daughter’s education fund, which he named as the charity.

He didn’t get rich. But he kept $200,000 from the IRS, guaranteed his income, and made sure his legacy mattered. That’s the real win.

What Happens If the Trust Fails?

Charitable trusts are designed to last. But they can run into trouble if they’re poorly managed. The trust must earn enough to cover its payments. If the market crashes and the trust’s assets drop 40%, it might not be able to pay you your annual $30,000. That’s not a breach-it’s a risk built into the structure.

That’s why most people use fixed percentages (like 5%) instead of fixed dollar amounts. A percentage payout adjusts with the market. A fixed amount doesn’t. The IRS requires CRTs to pay out at least 5% annually. But they can’t pay more than 50%. That’s the sweet spot: enough to be useful, not so much that it defeats the charitable purpose.

Also, the charity must be IRS-qualified. You can’t name your cousin’s startup as the beneficiary unless it’s a registered 501(c)(3) nonprofit. In Australia, it must be registered with the ACNC. If the charity dissolves, the trust must redirect funds to a similar cause. You can’t redirect it to your kids.

Alternatives to Charitable Trusts

If you don’t have half a million to put in, or you’re not ready for the complexity, there are simpler options:

• Donor-advised funds (DAFs): You donate cash or assets to a fund (like Fidelity Charitable or Australian Communities Foundation), get an immediate tax deduction, and recommend grants to charities over time. No setup fees, no legal paperwork. You can start with $5,000.
• Charitable bequests: Leave money to charity in your will. Simple, no upfront cost, but no income while you’re alive.
• Charitable gift annuities: You give money to a charity, and they pay you fixed income for life. Less flexible than a trust, but easier to set up.

DAFs are the most popular alternative today. In 2024, Americans gave $42 billion through DAFs. In Australia, the number is growing fast-up 37% since 2020. They’re perfect for people who want to give strategically without the legal overhead.

Common Myths About Charitable Trusts

Let’s clear up a few misconceptions:

• Myth: You lose control of your money. Truth: You choose the charity, the payout rate, and the trustee. You can even stay involved as an advisor.
• Myth: It’s only for the ultra-rich. Truth: While $500k is the typical starting point, some firms allow $100k with a financial advisor.
• Myth: The charity gets everything. Truth: In a CRT, you get paid first. The charity gets what’s left after you’re done.
• Myth: You can change your mind. Truth: Once you fund it, you can’t take it back. That’s the whole point.

These aren’t gimmicks. They’re legal tools built over decades to encourage giving. The IRS and Australian Taxation Office have strict rules for a reason: to prevent abuse.

Should You Set One Up?

Ask yourself these questions:

• Do I have $500,000 or more in assets I don’t need to spend now?
• Am I in a high tax bracket and want to reduce my tax bill?
• Do I want to leave a legacy to a cause I care about?
• Am I okay with not touching the principal after I fund it?

If you answered yes to all four, talk to a financial advisor who specializes in charitable giving. Don’t go it alone. The paperwork is complex. Mistakes can cost you tens of thousands in penalties.

If you’re not sure, start with a donor-advised fund. It’s cheaper, simpler, and lets you test the waters. You can always move to a trust later.

Charitable trusts aren’t about getting rich. They’re about getting smart. They let you do good while protecting your wealth. And in the end, that’s worth more than any payout.