Families establish trusts for a wide variety of reasons, including for credit protection, asset management, and generational support. In recent years, however, Pendleton Square Trust Company, LLC, has noticed a trend toward charitable gifting through the trust administration process. This trend isn’t isolated to our clients—according to Giving USA: The Annual Report on Philanthropy, charitable contributions topped out at a record $484.85 billion in 2021.[1] Charitable giving is on the rise, and families are looking for avenues to maximize their impact.
Our philanthropic-minded trust clients generally fall into one of three categories. First, those families with established charitable trusts. Second, those families with established non-charitable trusts who are looking to make charitable contributions. Third, those families with private family foundations designed for charitable giving. Regardless of which category our client falls in, Pendleton Square tailors the trust administration process to meet the family’s unique charitable goals.
For those clients who come to Pendleton Square with an established charitable trust, our role is to administer the trust in accordance with the grantor’s stated wishes. The trust may name a charity as a current beneficiary, in which case, Pendleton Square makes distributions directly to the charity. Alternatively, the trust would name a charity as the remainder beneficiary, set to receive assets when the trust terminates. Here, Pendleton Square administers the trust through the lifetimes of the current beneficiaries, or for a fixed term not to exceed 20 years[2], and when the time comes, terminates the trust, and distributes the remaining assets to the named charity.
Many families with non-charitable trusts are interested in making charitable contributions from the trust assets. Some trusts may specifically authorize charitable gifts at the discretion of the trustee or beneficiary, or allow the grantor or trust protector to add charitable beneficiaries. If not allowed by the trust, Pendleton Square can assist in decanting the trust instrument to provide charitable flexibility. For example, we could add or modify a power of appointment to include charities as permissible appointees. Tennessee’s decanting statute is among the best in the nation, allowing decantation of the original trust by modification or restatement, instead of requiring the execution of a wholly separate trust document.
If the terms of the trust do not expressly authorize charitable gifting or adding beneficiaries, or prohibit decanting, Pendleton Square will analyze the distribution provisions at the request of a beneficiary, and determine whether the trust supports charitable giving. Many trusts vest distribution decisions in the trustee’s sole discretion. If this is the case, Pendleton Square may exercise its discretion and make distributions to beneficiaries for the purpose of charitable giving. The beneficiaries can then make gifts to their selected charity.
Other trusts limit the trustee’s discretion, only permitting distributions that promote the health, education, maintenance, or support of the beneficiary. There may be situations where this “HEMS” standard can support charitable giving. Take, for example, a beneficiary who makes regular charitable contributions, such as tithes to a church. The beneficiary might request that, under the unique terms of the particular trust, distributions for the purpose of paying the tithe act to “support” or “maintain” his or her philanthropic lifestyle. After considering the trust language and relevant circumstances, the trustee may find that a distribution to the beneficiary for charitable giving is allowable and in keeping with the grantor’s intent.
For those families with private family foundations, Pendleton Square offers a broad array of services. At the onset, Pendleton Square may help a family identify their initial charitable interests and recommend charities that align with those philanthropic priorities. Further, we often guide families in developing comprehensive legacy plans that include strategies on how to involve rising generations in the family’s charitable endeavors. Pendleton Square also plays a key role in establishing institutional structures within the private family foundation to preserve the continuity of the foundation’s mission.
Additionally, Pendleton Square assists in the administration of private family foundations. We customize back-office solutions for our clients, which include conducting due diligence on prospective grantees, verifying tax status, handling correspondence and cash management with the investment advisor, facilitating distributions, and performing all necessary tax reporting. For many families, private family foundations provide the framework to bring generations together and instill charitable values while accomplishing socially rewarding work.
Pendleton Square understands that charitable giving is inherently personal. With a deep commitment to client-centered trust administration, we provide our families with industry-leading services that promote individualized philanthropic goals. Pendleton Square welcomes the opportunity to assist your family in maximizing your charitable giving impact through the trust administration process.
[1] Giving USA: The Annual Report on Philanthropy
[2] 26 U.S. Code § 664
