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Is a charitable trust right for you?

On Behalf of | Nov 1, 2021 | Estate planning |

If you enjoy giving back, such as by donating to your church, your alma mater or your favorite charity, you may wish to consider establishing a charitable trust so as to make these donations in a more structured manner.

FindLaw explains that you can choose to establish one of two types of charitable trusts: a charitable lead trust or a charitable remainder trust.

Charitable lead trusts

In a charitable lead trust, your charitable beneficiary receives the income produced by the trust’s assets for a specified number of years. Thereafter, your noncharitable beneficiary receives the trust assets.

Charitable remainder trusts

A charitable remainder trust works in the opposite way. Here, your noncharitable beneficiary receives the trust income throughout his or her lifetime or for a specified number of years. Thereafter, your charitable beneficiary receives the trust assets.

Tax benefits

While your charitable trust, of course, benefits your designated charitable beneficiary, it can also provide you with tax benefits as well. For instance, once you fund the trust, you can take an income tax deduction for the value of the assets you place in the trust. If you wish, you can spread the deduction over five years. In addition, the trust property will not become part of your estate, thereby possibly saving you from paying estate taxes.

Additional benefits

Additional benefits you receive from establishing a charitable trust include the following:

  • You can choose to receive your annual trust income as either a fixed dollar amount or a percentage of the current trust value.
  • You can avoid paying capital gains tax when the trust sells or otherwise disposes of stock, real estate, etc.
  • You can diversify your investments.
  • You experience the joy and satisfaction of providing for your chosen charitable beneficiary.

All in all, a charitable trust may be just the vehicle you seek in order to give back.