If you are someone for whom charitable gifting is a way of life, you probably have several charities that are dear to your heart and to which you donate on a regular basis. Your charitable gifts may even be dependent on to keep the charity afloat. If so, you likely want to make sure your support continues after you are gone by including charitable gifts in your estate plan. The Owings Mills estate planning attorneys at Gershberg & Associates, LLC explain why may wish to use a trust for charitable gifting in your estate plan.
Why Making Charitable Gifts in Your Will Is Not Ideal
You certainly can make charitable gifts in your Last Will and Testament, however, doing so is less than ideal. Using your Will to make direct gifts to a charity does not allow for much (if any) control over how that gift is used once the transfer is complete. Using a Will as a tool to make charitable gifts could cause you to miss out on potential tax benefits. Finally, making charitable gifts in your Will does not afford you the opportunity to pass down your belief in charitable gifting to future generations. To accomplish that goal, you will need to use a more complex method of gifting.
Using a Trust for Charitable Gifting
If you decide to use a trust to make charitable gifts you have two broad options. The first is to establish a trust focused entirely on charitable gifting, meaning all the beneficiaries of the trust are charities. The second is to create one of two types of “split-interest” trusts. Charitable lead and charitable remainder trusts are specialized split-interest 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 designated amount of time 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.
Several important advantages to creating using a trust for charitable gifting within your estate plan, include:
- Control over how assets are used. Unlike a direct gift in your Will, a trust allows you to use the trust terms to control how the gifted assets are used.
- 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.
- Passing down your legacy of charitable gifting. You may wish to appoint an adult child as your Trustee as a way to pass down your belief in the importance of charitable gifting.
Contact Us For Help With Trusts and Charitable Gifting
For more information, or if you have additional questions or concerns about using a trust for charitable gifting, contact Richard Gershberg and his staff, the experienced Owings Mills Estate Planning office at Gershberg & Associates, LLC by calling 410-654-3850 to schedule an appointment.