Charitable Trusts: Save on Taxes, Save the World

This article is not a substitute for, nor does it constitute, legal advice. Only an attorney who knows the details of your particular situation can provide you with legal advice.

Charitable Trusts: Save on Taxes, Save the World

So you want to give some of your money to charity? Great. It’s commendable that you would want to help causes bigger than yourself. Charitable trusts are an excellent way to give to your favorite charity and to save some of your hard-earned cash. With a little planning, charitable trusts can also help you save on your estate taxes and income taxes. This blog post will cover the basics of a charitable trust.

What is a charitable trust?

A charitable trust is like most trusts in that a trustor places assets in a trust that are then distributed to a beneficiary. The charity then distributes some of the income of the trust to your designated beneficiaries, which can include you. The charity MUST be designated as tax-exempt by the IRS for any of the tax-saving benefits of a charitable trust to work for you. There are a few types of charitable trusts. For brevity’s sake, we will only discuss the most common two types of charitable trusts here. These are charitable lead trusts and charitable remainder trusts.

A charitable lead trust pays the charity first. Upon termination, the rest of the trust assets go to beneficiaries, usually heirs or the donor.

A charitable remainder trust is irrevocable and pays the charity last. That is to say that they provide an income stream to the income beneficiary and the charity receives the remainder.

What are the advantages of a charitable trust?

Outside of the magnanimous act of giving to a charity, there are several very practical tax reasons to include a charitable trust as part of some estate plans.

For starters, you get deductions. You get deductions on your income tax, and sometimes you can get gift or estate tax deductions for making a lead trust gift.

But getting deductions is just the beginning. There are ways you can escape capital gains taxes with a charitable trust. Once you hand over the assets in a trust to a charity, the charity has control of the property. A charity does not have to pay capital gains tax. The charity can then sell assets that have appreciated significantly in value and exchange them for other income producing assets. You can then receive the income from these income producing assets for life without paying capital gains tax.

I hope this brief overview about the benefits offered by charitable trusts has been helpful to you. If you would like to learn more about charitable trusts or have me help you incorporate a charitable trust into your estate plan, please contact me at Grant@ToeppenLaw.com.

The entirety of this article is copyrighted by Grant A. Toeppen, Esq., © 2012.  Please send an email to Grant@ToeppenLaw.com if you would like to use this article in part or in its entirety.

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