Transferring Your Legacy
Making a Difference: Charitable Trust Planning
The past few years have exposed a lot of needs in our communities, and many of us feel even more compelled to give back what we can.
It seems more important now than ever to support worthy charitable organizations that are working hard in our communities to lift up our most vulnerable neighbors. But finding the balance between generosity and security is sometimes tricky – especially in volatile financial times. Charitable trusts, in particular, can help us answer the call and can be wonderful tools for impactful and tax-smart giving.
Charitable trusts often fall into two classifications: Charitable Lead Trusts and Charitable Remainder Trusts. As the names suggest, the timing of the charitable impact will vary based on the type of trust selected. Both types of trusts create a split interest: gifts are divided between charities and individuals, usually the trust creator or a member of their family.
Within each of these categories, planners typically use either an "annuity" approach, with a fixed dollar amount payable to an annuity recipient each year, or a "unitrust" structure, with a fixed percentage of trust assets being payable each year during a set term.
Because these trusts are irrevocable, their funding will reduce the value of the donor's taxable estate and thus, estate taxes. By splitting these gifts between family and charitable recipients, donors can also often achieve desirable income tax outcomes, while both fulfilling their philanthropic goals and providing for their family's financial security.
A Charitable Lead Trust ("CLT") gives an immediate, steady income stream to a charitable beneficiary for a set term. At the end of the charitable term, the remaining trust assets typically pass to a child or grandchild of the donor.
A Charitable Remainder Trust ("CRT") is essentially the mirror image of the CLT. The CRT pays an income annuity or unitrust amount to one or more non-charitable beneficiaries (usually the trust's creator or a family member), with the remainder passing to charity at the end of the term. These trusts function much like a charitable gift annuity, but the donor's selected Trustee retains control over the management and investment of the CRT assets during the term.
CRTs can also be paired with the use of a Donor Advised Fund to increase flexibility and allow for additional family input in selecting the eventual charitable recipients.
This article was written by Smith, Ward, P.A. from National Law Review and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to email@example.com.
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