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Charitable Trusts

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CHARITABLE TRUSTS

 

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.

  

Here are the basics:

 

 1.  During your lifetime you receive a set percentage of income from the charitable trust.

 2.   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 he/she passes away.)

Benefits:

 

1.  May be able to avoid capital gain on assets contributed to trust

2.  Receive an income stream from the trust

3.  Receive a charitable deduction for assets contributed ( based on  calculation of time value of money, etc)

4.  May be able to become the trustee and make decisions about the assets within the trust


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 (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.  Before you consider any type of Charitable trust, a professional  tax advisor or attorney should be consulted

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