Charitable Giving/Foundations

Charitable Giving Can Be Smart Estate Planning

In addition to the goodwill benefits of any charitable contribution, there are generally tax advantages to the donor.  When deciding your estate-planning strategies, consider a charitable contribution option, which can help the charity of your choice as well as provide you with a steady stream of income and potential tax benefits.

Charitable Remainder Trusts (CRTs) Demystified

A CRT is an irrevocable, tax-exempt trust in which you place assets to provide income for yourself during a specific period of time (i.e., your lifetime or a period not to exceed 20 years). After that, the remaining assets will be turned over to the charity of your choice. The trust can be funded with a wide assortment of assets, including bonds, mutual funds, stocks, and real estate.

It offers flexibility, a lifetime income stream for you, and significant tax benefits to you and your heirs. Ultimately it may be even more beneficial for you than a simple bequest.

For instance, if you have an appreciated asset like real estate, and you sell the property yourself, you will likely pay a great deal in capital gains taxes. But if you transfer the property to a charity through a CRT, the trustee may be able to sell the property with no gift, estate, or capital gains taxes for the donor. The trustee can then set up an investment that will provide an income stream for you, which will be subject to ordinary income taxes and capital gains. At the death of the last beneficiary or the end of the trust period, the trust ends. The amount remaining in the trust is distributed to the named charity.

A CRT must be either an annuity trust or a unitrust; both allow flexibility in payment options. But there are important differences: They involve income and the fair market value of the assets in trust. Income from an annuity trust is a fixed percentage (not less than 5% or more than 50%) of the initial fair market value of the assets. This type of trust is best used with assets that will be able to generate the required income and do not fluctuate greatly in value (such as bonds). The income to the donor is fixed, and will not grow as the asset base grows. Consequently, the income may not keep up with inflation.

 Benefits Of A Charitable Remainder Trust

  • In many cases, there are no capital gains taxes on assets transferred to, and sold through a charitable trust;
  • Has the potential to generate substantial income for the donor; and
  • Creates an income tax deduction for the donor.

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