Charitable giving is a fundamental part of our culture. Many huge institutions exist primarily because of donations from corporations and individuals. Outright monetary gifts are still commonplace, but donors have become increasingly aware of other ways to make charitable gifts -- earning tax breaks and other financial advantages in the process. One such method involves a charitable trust.

Each of the two main categories of charitable trusts has both a charitable beneficiary and one or more individual beneficiaries. In a charitable remainder trust (CRT), one or more individuals usually receive payments for a certain period of time, or until their death. Then, whatever is left (the remainder) goes to the charity named in the trust. In a charitable lead trust (CLT), the reverse is true; the charitable beneficiary receives regular payments from the trust for a certain period of time, after which the individuals named as remainder beneficiaries take the remaining trust assets.

The IRS has provided two primary ways to determine how a charitable trust's payments are determined. One, called an annuity trust, has fixed payments throughout the term of the trust. The other, called a unitrust, has payments that are a percentage of the total trust assets and adjust annually. The person creating the trust may choose the payout rate. Depending on the payout rate and the rate of appreciation of assets inside the trust, a unitrust's payment stream may increase or decrease over the course of the trust's term.

A charitable trust can create substantial tax benefits. With remainder trusts, a current tax deduction is usually available to donors based on the present value of the remainder interest given to charity. In addition, if you donate stock that has a low tax cost basis but has appreciated in value significantly, the trust can sell that stock and build a more diversified portfolio, often without an immediate requirement that you pay tax on the entire gain. Suppose you still have some Microsoft (NASDAQ:MSFT) or Intel (NASDAQ:INTC) stock that you bought in the early 1990s, and you decide to give it to charity. You might not only get an income tax deduction of up to 35% for the gift, but also avoid capital gains tax of up to 15% on the unrealized gain in the stock. This tax savings may allow people who were already planning to donate to charity to make even larger gifts.

Charitable trusts require careful drafting to make sure the tax benefits aren't lost, and there may be other, simpler ways to get some of the same advantages. Many charities have planned-giving specialists who can help you tailor your gift to your particular financial needs.

Read more in our series about trusts:

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Fool contributor Dan Caplinger welcomes your comments at; he does not own shares in any of the companies mentioned in this article. Microsoft and Intel are Motley Fool Inside Value picks. The Fool has a disclosure policy.