For some people, philanthropy is a way of life. If you are one of those people, you probably have several charities that are dear to your heart and to which to donate on a regular basis. Those charities may even have come to depend on your donations. What happens when you are gone? Can you use a trust to carry on your charitable gifting after your death? The Grand Forks trust attorneys at German Law Group offer some suggestions to help you continue your charitable gifting through the creation of a trust.
Why Do I Need a Trust? Can’t I Just Make a Gift in My Will?
You can make charitable gifts in your Last Will and Testament; however, there are a number of reasons why doing so is not the best option. Using your Will to make charitable gifts means you will almost surely miss out on tax benefits that a trust offers. In addition, when you make a direct gift in your Will, you lose all control over how that gift is used once the transfer is complete. Finally, if you also hope to pass on your legacy of philanthropic gifting, you will need to use a more complex method of gifting, such as a trust.
You always have the option to establish a trust that is focused entirely on charitable gifting, meaning all the beneficiaries of the trust are charities. There are also two types of “split-interest” trusts that are commonly used make charitable gifts. Charitable lead and charitable remainder trusts are specialized trusts that allow you to gift to both charitable and non-charitable beneficiaries within the same trust.
With a charitable lead trust (CLT) a charitable beneficiary receives distributions from the trust for a specific period first or for the life of a person. At the end of the designated time, the remaining assets, plus any interest that has accrued, are distributed to the non-charitable beneficiary. A charitable remainder trust (CRT) works in reverse with the non-charitable beneficiary receiving distributions first and the remainder (plus interest) going to the charitable beneficiary. The non-charitable beneficiary will receive payouts at least annually for your lifetime, the life of another person, or for a set number of years.
Benefits of Using a Trust for Charitable Gifting
As mentioned above, a trust makes a better vehicle for making charitable gifts than your Will for several reasons. There are also additional advantages to creating a charitable trust, including:
- Preserving the value of highly appreciated assets. For those with significantly appreciated assets including non-income-producing property, a charitable remainder trust allows you to take that property, sell it within the trust as tax exempt, and preserve the full fair market value of the property, thereby avoiding that payment of large capital gains taxes which ultimately diminishes the value of the gift.
- Reducing gift and estate taxes. Generally, once you fund a charitable trust, these assets are out of your estate for estate tax purposes. If a contribution to a CLT occurs upon the death of the donor, the donor will be eligible for an estate tax deduction for the value of the interest paid to the charity. In addition, if you contribute to a non-grantor CLT during your lifetime, you may be eligible for a gift tax deduction based on the interest going to the charity. However, if the remainder beneficiary on a CLT is not the donor, then the donor might be subject to gift tax on the value of the remainder interest.
- Creating income from non-income-producing property. If you fund a charitable remainder trust with non-income-producing property, the tax-exempt CRT can sell the property, preserving the charitable remainder, and, at the same time, provide an income stream back to you, as the donor.
Contact a Grand Forks Trust Attorneys
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about gifting to charity in your estate plan, contact the Grand Forks trust attorneys at German Law Group by calling 701-738-0060 to schedule an appointment.