Many people are inclined to use their assets to help leave the world a better place when they die. Some folks want to leave behind a philanthropic legacy. Others just want to use the money that they will no longer need to do some good in the world. The benefits of a charitable trust justify its application for this purpose.
No matter your motivations, adding charitable donations to your estate plan will not only help others, but it will be beneficial for you as well.
One of the best vehicles for leaving assets to a charity is through the use a Charitable Trust. There are two major types of charitable trusts: Charitable Lead Trusts and Charitable Remainder Trusts. These can be set up during the donor’s lifetime (inter-vivos) or through a donor’s will to go into effect upon his or her death (testamentary).
The main difference between the aforementioned charitable trusts is who receives money when. In a Charitable Lead Trust, the charity will be paid first. Then, upon the termination of the trust, what’s left will go to beneficiaries chosen by the grantor. A Charitable Remainder Trust will be distributed first to chosen beneficiaries as a stream of income, and then the remainder will go to the charity chosen by the donor upon the termination of the trust.
One of the main considerations folks have, when they contact our trust attorneys, relates to paying taxes during and after death. There are federal and state tax implications (income tax, capital gains tax, estate tax, etc) with any estate planning vehicle. This includes living trust, charitable trusts, and other forms of wills and trusts.
Below we have outlined three of the major benefits to setting up a charitable trust.
TAX BENEFITS OF A CHARITABLE TRUST
There are numerous tax benefits to setting up a charitable trust, but the biggest is the fact that charitable trusts are exempt from capital gains and estate taxes upon the death of the trust grantor. This could mean significantly lower estate taxes on the rest of your assets depending on the size of your charitable trust.
Charitable Remainder Trusts & Tax Exemptions
If you donate cash, stocks or non-publicly traded assets such as real estate, private business interests and private company stock then you may become eligible to take a partial tax deduction. The partial income tax deduction is based on the type of trust, the term of the trust, the projected income payments, and IRS interest rates that assume a certain rate of growth of trust assets.
Charitable Lead Trust
A charitable lead trust can have positive tax implications as well. Unlike the remainder trust, the lead trust works by setting up a charitable trust, paying into it for a certain amount of time, and once that time is up the non-charity beneficiaries (including the grantor or the surviving spouse) receive the assets in the trust. This type of trust has immediate income tax benefits and it can also benefit the non-charity beneficiaries down the line.
The Bottom Line
Upon the grantor’s passing, the assets held in the trust are not liable to estate taxes since they are no longer considered part of the grantor’s taxable estate. Additionally, any assets within the trust that have increased in value are also excluded from the present capital gains tax.
Furthermore, if your charitable trust is set up during life then you could be eligible for income tax deductions based on the value of the up-front or eventual gift to charity in the year the trust is funded.
PRESERVE VALUE OF APPRECIATING ASSETS – ANOTHER BENEFIT OF A CHARITABLE TRUST
The tax-exempt status of a charitable trust also provides another major benefit for your wealth. It can serve as a tax-free vehicle for assets that will significantly appreciate over time such as stocks and bonds. You can also sell non-income producing property to create a charitable trust and receive the full value of the property without losing large chunks of it to capital gains tax.
Since charitable trusts allow you to leave your wealth to individual beneficiaries alongside the charities of your choice you could significantly add to the assets you are able to leave to your family while also giving back to a good cause.
WARM AND FUZZY FEELING
Sure there are plenty of tax and wealth benefits for you and your family included in setting up a charitable trust, but let’s not forget the peace of mind you will achieve by knowing you are using your wealth to do some good in the world.
The philanthropic aspect of a charitable trust means you can choose the causes that are most important to you and use the assets you’ve earned throughout your life to give back to them. The possibilities are nearly endless, and let’s not forget: you can’t take it with you.
Get in contact with one of our trust lawyers
Law Offices of John Mangan, P.A. Palm City – Stuart, FL
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