Incorporating Charitable Giving Into Your Estate Plan
You are likely well aware of the tax benefits that come from donating to charity during your lifetime. But you may be surprised to learn that there are a number of benefits that are available when you incorporate charitable giving into your estate plan.
As with donating to charity during your lifetime, dedicating a portion of your estate to a charitable cause can reduce the taxable value of your estate. You can also receive significant tax savings by naming your favorite charity as the beneficiary of your IRA, 401(k), or other retirement accounts.
While we can help you find the most beneficial option for your particular situation, here is one unique way to structure charitable giving into your plan.
Set Up a Charitable Remainder Trust
One great way to incorporate charitable giving into your estate plan is by creating a special trust known as a charitable remainder trust (CRT). If you have highly appreciated assets like stock and real estate you wish to sell, you can use a CRT to avoid income and estate taxes—all while creating a lifetime income stream for yourself or your family and supporting your favorite charity.
A CRT is a “split-interest” trust, meaning it provides financial benefits to both the charity and a non-charitable beneficiary. With CRTs, the non-charitable beneficiary—you, your child, spouse, or another heir—receives annual income from the trust, and whatever assets “remain” at the end of your lifetime (or a fixed period up to 20 years), pass to the named charity or charities.
When you set up a CRT, you name a trustee, an income beneficiary, and a charitable beneficiary. The trustee will sell, manage, and invest the trust’s assets to produce income that’s paid to you or another beneficiary. The trustee can be yourself, a charity, another person, or a third-party entity.
With the CRT set up, you transfer your appreciated assets into the trust, and the trustee sells them. Normally, this would generate capital gains taxes, but instead, you get a charitable deduction for the donation and face no capital gains when the assets are sold. Once the appreciated assets are sold, the proceeds are invested to produce income.
As long as it remains in the trust, the income isn’t subject to taxes, so you’re earning even more on pre-tax dollars. And when the trust assets finally pass to the charity, that donation won’t be subject to estate or income taxes.
Because CRTs come with very specific and complex requirements surrounding their creation, operation, and the responsibilities of the trustee, it’s vital that you consult with us, your Personal Family Lawyer® to set up your CRT.
Enlist Our Support
Although a charitable remainder trust is one way to incorporate charitable giving in your estate plan, there are several other options available. Meet with us, as your Personal Family Lawyer®, to determine the best way to achieve your charitable objectives while maximizing your tax-saving and other financial benefits.
This article is a service of CONNORS LAW, a Personal Family Lawyer® firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
