Giving Through a Charitable Trust

posted James Thielen, JD 2/1/2017 in Trust

Charitable Trust

There are so many generous people living among us, and there seems to be no shortage of charitable organizations to donate to.  If you have found a charity that aligns with your passions, beliefs or values, consider establishing a Charitable Trust.  There are two particular charitable trusts I will cover, one is a Charitable Remainder Trust and second, a Charitable Lead Trust.

Charitable Remainder Trust

A Charitable Remainder Trust allows you, the grantor, to receive income, for a specified term, from the assets that you have transferred over to the Trust such as stocks or real estate.  In addition, you are able to name additional beneficiaries to receive income from this Trust as well.  Once either the specified term of fixed payments have been exhausted, or the grantor/last income beneficiary passes away, one or more charities that had been previously designated receives the remainder of the assets as a donation. 

Key benefits to a Charitable Remainder Trust are:

  1. Preserve Full Fair Market Value of Assets – you are able to contribute your assets, especially those that are long-term appreciating assets, and preserve the full value.  This allows more money for income as well as the amount given to charity.
  2. Tax Deduction – you could have the potential to take advantage of a partial income tax charitable deduction once you’ve transferred over your assets to the Trust.
  3. Asset Diversification – the investment income from the Trust is tax exempt, however the income beneficiary will pay income taxes on the payments received.

A Charitable Remainder Trust is a great option for those who want an immediate charitable deduction, but also have a need for an income stream to themselves or another person, as well as ensure their assets are passed on to their charitable organization of choice. 

Charitable Lead Trust

A Charitable Lead Trust is basically the exact opposite of a Charitable Remainder Trust.  A Charitable Lead Trust is an irrevocable trust that provides a fixed amount to provide income to a charity for a specified term.  Once the term is exhausted, or the grantor passes, the remaining assets from the Trust are distributed back to the grantor or designated beneficiaries.  Often times, a Charitable Lead Trust is created for lifetime giving and estate planning purposes.  

Although there can be significant tax benefits to establishing a Charitable Lead Trust, be aware of the potential implications of the generation-skipping transfer tax. If the remainder beneficiaries are or could be the grantor's grandchildren, the grantor should consult with his or her advisor.

Is a charitable trust right for you?

Lincoln Savings Bank, Member FDIC

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