community trust

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Community trusts are 501(c)(3) organizations designed to pool funds together to help fund projects in a community. These trusts can be used for a variety of needs such as scholarships, environmental projects, preservation, and affordable housing. Community trusts can be structured in multiple ways such as a trust or as a non-profit organization.  Many use the community trust avenue to benefit from its more efficient and tax-free organizational structure, but in order to qualify as a community trust, federal and state guidelines must be followed. Generally, a set of directors govern community trusts with the responsibility of managing the funds for long-term streams of income. The funding sources tend to come from wealthy individuals who would rather their finances be used in a community trust than the often much less efficient foundation organizational structure. Issues arise in setting the boundary between what should be considered, for legal and tax purposes, assets of the community trust versus those of a foundation or individual because the community trust tends to be a combination of many individual trusts and funds. Usually, assets that have been removed from the control or benefit of its grantor will be considered as part of the community trust as long as its governing documents allow the funds to be under the management of the community trust. 

[Last updated in February of 2022 by the Wex Definitions Team]