How setting up a charitable trust benefits you and your heirs

Charitable trusts are most commonly used by donors who wish to set aside some of their assets for allocation or use by one or more nonprofit organizations. Charitable trusts are most easily divided into two different categories: a charitable lead trust (CLT) or charitable remainder trust (CRT).

Both share some commonalities in that they direct a portion of an individual’s assets to a charity with the rest going to a non-charitable one. However, they differ in terms of both timing and whether you’re going to make an income stream or lump-sum type payment.

For example, when it comes to the CLT, a charity can benefit from the donor’s generosity for various years or during the entire course of the donor’s lifetime. Any lingering assets are turned over to the charity at the end of the agreed-to term. In contrast, with CRTs, the individuals are the ones who receive the income interest. The charities, as a result, receive only the remainder.

There are a number of reasons individuals decide to allocate their assets into a charitable trust. One such reason is because doing so serves the role of maintaining the value of assets with the highest potential for appreciating in value. Additionally, some individuals allocate their money into charitable trusts as a way of reducing a portion of their income or enjoying a tax deduction now in exchange for their anticipated future gift.

Investing your money in a charitable trust also has the potential of greatly reducing your estate tax burden that has to be paid upon your death. This can, in turn, preserve your heir’s ability to recover more than they otherwise would be able to do so. It can reduce your heir’s gift tax obligations as well.

Charitable trusts can also be set up to generate some income from a property that was otherwise not producing income. This can be accomplished by first setting up a tax exempt CRT, then selling the property with the charitable remainder in tow. In this case, the property could begin generating income while the CRT remains in place.

In addition to the aforementioned, there are a number of other strategies that you and your Melbourne, Florida, trusts attorney can employ that can reap financial benefits not only for you in the present, but for your heirs in the future.

Source: fidelity.com, “Chartable giving that gives back,” accessed May 03, 2017