Skip to main content

If charitable giving is in your estate plan, setting up a charitable trust is something to consider. These trusts give you the flexibility and control over your charitable contribution, while saving you income tax (and maybe even estate tax) dollars. Read on to learn more about charitable trusts and how they can benefit you.

When choosing to set up a charitable trust, there are two types to consider. Both types split the assets in the trust between a charitable and a noncharitable beneficiary. The main difference lies in the timing of when the charity receives funds. In a charitable lead trust (CLT), the charity (or charities) of your choice receives the income generated by the trust for a specific number of years or for someone’s lifetime. Upon the death of the specified individual, oftentimes the creator of the trust, the remaining assets in the trust are distributed to a noncharitable beneficiary(ies). Contrastingly, a charitable remainder trust (CRT) pays an annuity back to the creator of the trust (or another noncharitable beneficiary) for a specific number of years or someone’s lifetime while the remainder goes to a charitable organization.

Advantages of a Charitable Trust

Charitable trusts provide more tax benefits than just income tax deductions. If set up correctly, they can also reduce estate taxes and preserve the value of highly appreciated assets that you may have in your portfolio.

Income Tax Deductions. If you set up a CRT, you will receive an immediate income tax deduction for the portion of the contributed assets that will eventually go to charity. CLTs can also be set up so that the donor receives a charitable deduction in the year the trust is funded.

Estate Tax Reduction. Generally speaking, transferring assets to a charitable trust excludes them from your taxable estate upon your eventual death. Especially for highly appreciated assets, this reduces your possible estate tax and preserves money for your heirs.

Preserving Highly Appreciated Assets. Contributing highly appreciated assets to a charitable trust preserves the value of the asset while avoiding the capital gains tax you would incur if you sold it in your name. The trust can sell the assets without incurring this tax liability thereby retaining more value to fund charitable organizations.

Creating Income. If you need income but your assets don’t produce any, you can put these assets into a charitable trust, sell them without incurring any tax liability, and provide a stream of cash back to yourself until the remainder goes to a charitable organization.

Although these trusts come with many advantages, it is important to factor in the cost of setting up and maintaining the trust when considering creating one to further your charitable goals. If you have questions or are interested in figuring out if a charitable trust is right for you, please do not hesitate to contact your L&B professional at (858) 558-9200.

Tax reform is here! Below are critical updates for Estates and Trusts:

“Estate Tax: Not Repealed – Exemption Doubled”

The new law did not repeal the estate tax but rather doubled the estate and gift tax exclusion amounts for estates of decedents dying and gifts made after December 31, 2017 and before January 1, 2026.  The generation-skipping transfer (GST) tax exemption is also doubled.

“Electing Small Business Trusts to include nonresident aliens – (ESBT)”

A nonresident alien individual may be a potential current beneficiary of an ESBT without causing the loss of the S corporation election.  The new law does NOT allow a nonresidential alien to be an S corporation shareholder.  This change is effective January 1, 2018.

Leave a Reply

LB Advisors is Now EisnerAmper! Learn More >>