Estate Planning: Supporting a Noble Cause
Charitable trusts are a handy tax-saving tool. But they can also greatly
benefit a charity of your choice.
Last December, the White House Conference on Aging held its first meeting in 10 years. The conference
addressed the growing number of baby boomers reaching retirement and highlighted how a large
number of them are contemplating volunteering.
More and more retirees are volunteering for charities and non-profits in an effort to contribute to their
community and stay active and healthy. Even the Peace Corps has seen a large increase in the number
of older volunteers. But there’s a way you can contribute to society without going overseas, and it’s called
a charitable trust. It has become an increasingly popular way to contribute to charity as well as save
money on taxes.
Trusts, simply put, are a way for you to transfer assets and property into one solitary group. With a
charitable trust, the assets and property contained within it provide an income for you during your
lifetime. After you pass away, the remaining assets are given to the charity within the trust. There are two
major forms of charitable trusts: charitable remainder trusts, and charitable lead trusts. Charitable trusts
have a host of other benefits, as well as a few drawbacks, but here are the basics.
Charitable Remainder Trust (CRT)
A charitable remainder trust has two beneficiaries. In most cases, one of them
is you (and possibly your spouse), and the other is the qualified charity or
tax-exempt organization you plan on supporting. During your lifetime you
receive a set percentage of income from the charitable trust. Once you pass
away, the charity then receives whatever is left over. (If your spouse was
receiving income as well, he or she will continue receiving it until passing away.)
One of the benefits of a charitable remainder trust is that you may be able to
become the trustee and make decisions about the assets within the trust,
including investment choices and other important matters. Unfortunately,
charitable remainder trusts are irrevocable, but you may be able to change the
beneficiaries when you wish. This allows you some degree of personal
freedom, especially if you find a charity or non-profit that you feel is more
deserving of your gift.
With a charitable remainder trust you get to choose the amount of income you’ll
be paid from the trust on an annual basis. According to the IRS, every year you
must distribute at least 5% of the value of the trust’s assets. Depending upon
the type of trust, you can value the assets for distribution purposes at the time
the trust is funded or on an annual basis. Some beneficiaries choose to take
more, but it’s generally recommended to take no more than 10%.
All realized profit from investment sales within the trust is not subject to capital
gains tax. This is because you are benefiting a charity. Charitable trusts are
especially helpful when it comes to highly appreciated assets with limited
income-producing potential. By avoiding the capital gains tax, more money
goes to your charity instead of Uncle Sam. You also get an income tax
deduction because your CRT supports a charity. Please note, however,
that income from trust assets is subject to federal income taxes.
Charitable Lead Trust (CLT)
A charitable lead trust is basically the same concept as a charitable remainder trust, but in reverse. With
a CLT, a charity receives a certain percentage of income every year. Once you pass away, whoever
you've named as the beneficiary (a spouse or children) receives the assets that remain. A CLT offers the
same advantages of a remainder trust, but the roles are reversed.
Both charitable remainder trusts and charitable lead trusts offer a variety of advantages over traditional
estate planning tools. Above all, they allow you to give back to society while still taking advantage of tax
deductions and exclusion from capital gains taxes.
There are numerous details and complex steps to take when looking at a charitable trust as an estate
planning option. You should always find a trusted financial professional to help guide you through the
process. They can usually refer you to a known estate planning attorney who will also help. Like all estate
planning options, trusts have their pros and cons, but they’re certainly a good option worth considering if
you wish to save on taxes, support a good cause, and feel great about it in the process.
All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to
participate in any particular trading strategy. The Money Alert does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any
information prepared by any unaffiliated third party, whether linked to this web site or incorporated herein, and takes no responsibility. All such information is provided solely for
convenience purposes only. The Money Alert is not affiliated with any of the firms or entities listed unless specifically stated. The Money Alert does not provide investment, tax or legal
advice. Please consult the appropriate professional regarding your personal situation.
Copyright © 2010 The Money Alert.com. All rights reserved.