While simple estate plans may just use a will, more complex plans may benefit from also employing a trust.
Would you like to preserve your assets for your children or other loved ones while minimizing tax consequences at the same time? If so, a charitable trust could be a good tool for you to use.
Charitable trusts provide individuals with a way to support charitable causes while enjoying certain financial benefits. Two common types of charitable trusts are charitable lead trusts (CLTs) and charitable remainder trusts (CRTs). Although both trusts serve philanthropic purposes, they differ in structure, timing of charitable distributions, and tax benefits. In this article, we’ll look at their unique benefits.
Charitable Lead Trusts
Charitable lead trusts are structured to allow your favorite charity, or charities, to receive a specified portion of the trust’s income or assets for a designated period or until your death. After this period ends, the remaining trust assets are transferred to non-charitable beneficiaries, such as family members or other individuals. A CLT would be particularly useful if you wish to support a charitable cause during your lifetime while also preserving assets for your loved ones.
Advantages & Benefits of CLTs
- Immediate Philanthropic Impact: One of the key advantages of CLTs is that they enable you to witness the effects of your charitable contributions during your lifetime. This can be particularly rewarding if you have a strong desire to see the difference you make in your community.
- Estate and Gift Tax Planning: You can reduce your taxable estate and potentially minimize your gift tax liability. The present value of the charitable interest in the trust may be deducted from your income taxes, providing an opportunity for tax savings.
- Asset Preservation: You can preserve family wealth for future generations. By transferring assets to a CLT, the appreciation of those assets during the trust’s term can occur outside your estate, potentially reducing estate taxes.
Charitable Remainder Trusts
Charitable remainder trusts operate in the opposite manner of CLTs. They allow individuals to receive an income stream from the trust during their lifetime or for a specified period. Afterward, the remaining trust assets are then transferred to charitable organizations. A CRT would provide you with the benefit of financial security while also contributing to philanthropic causes.
Advantages & Benefits of CRTs
- Income Stream and Tax Benefits: Receive a regular income stream from the trust during your lifetime. This income can be structured as a fixed percentage of the trust’s value or a fixed dollar amount. Additionally, you can enjoy an immediate income tax deduction based on the present value of the charitable interest.
- Capital Gains Tax Savings: When you contribute appreciated assets to a CRT, you can avoid or defer capital gains tax upon the sale of those assets by the trust. This can be particularly advantageous if you are holding highly appreciated assets, such as stocks or real estate, as it allows you to diversify your investments without incurring immediate tax consequences.
- Charitable Giving and Legacy: Support your favorite charitable organizations, ensuring a meaningful legacy for the causes you care about. By leaving a charitable legacy, you can promote philanthropy and inspire future generations to engage in charitable giving.
Financial and Philanthropic Benefits
Both CLTs and CRTs can provide you with valuable tools to support philanthropic causes while enjoying personal financial benefits. A CLT will allow you to witness the immediate effects of your contributions while preserving assets for your heirs. On the other hand, a CRT will provide you with a steady income stream during your lifetime, along with tax advantages and the opportunity to leave a lasting charitable legacy.
When considering which trust is suitable for your philanthropic goals, it’s important to consult with a qualified estate planning attorney who can assess your unique circumstances and guide you through the process of setting up and managing a charitable trust. By carefully selecting the appropriate trust structure, you can maximize the effect of your charitable giving while enjoying the financial benefits that come with it. Contact our office to speak with an estate planning attorney and learn more about how a charitable trust can help you meet your financial and philanthropic goals.
This article offers a summary of aspects of estate planning. It is not legal advice and does not create an attorney-client relationship. For legal advice, you should contact us at (352) 565-7737! We look forward to hearing from you!