Charitable Trusts are usually utilized by higher net worth individuals who want to make a substantial donation to a favorite Charity while also providing for themselves and their families in a tax efficient manner.
Charitable Lead Trust
With a Charitable Lead Trust, the trust is funded with a certain amount and thereafter the Charity is paid an annuity or unitrust amount for a term of years. At the end of the term, any amounts remaining in the trust pass to the remainder beneficiaries according to the terms of the trust. The benefits of this type of arrangement are that when the trust is funded, the donor or the donor’s estate gets a charitable deduction for the present value of the annuity or unitrust payments. The present value of the remainder or “gift” to the non-charitable beneficiaries is also valued for gift and estate tax purposes. In theory, if the trust assets perform at a higher rate of return than anticipated, the actual amount distributed to the non-charitable remainder beneficiaries will be greater than the value of the “gift” previously assigned to the remainder, resulting in gift or estate tax savings to the donor. The opposite would be true if the assets in the trust performed at a lower rate of return than anticipated.
Charitable Remainder Trust
With a Charitable Remainder Trust, the trust is funded with a certain amount and thereafter annuity or unitrust payments are made to the lead beneficiaries, which may include the donor or the donor’s spouse, for a term of years. At the end of that time the remainder passes to the designated Charity. Upon funding the trust, the donor gets a charitable deduction equal to the present value of the Charity’s remainder interest. If the donor or the donor’s spouse are not the sole lead beneficiaries of the trust, the donor could be subject to estate and gift taxes on the present value of the annuity or unitrust interest.
With Charitable Trusts the Donor can fund the trust with highly appreciated non income producing assets which can then be sold by the trust and reinvested without the donor incurring capital gains taxes on the sale.
There are many different options available to satisfy your charitable estate planning goals while still providing for yourself or your spouse during your retirement years and providing for other beneficiaries in a tax efficient manner.
If you have charitable giving objectives, an estate that may be subject to estate taxes upon your death or want to explore your options for minimizing taxes, we are here to help. Contact us today to schedule your free consultation.