Giving is the Plan: What About a Charitable Trust?
A charitable trust offers multiple structures with varying tax implications. The two primary types are the charitable remainder trust (CRT) and the charitable lead trust (CLT), each with distinct variations and purposes.
Key Basics to Consider
- Multiple charitable trust types exist
- Evaluate all drawbacks and available options
- Ensure alignment with your estate and financial plans
Charitable Remainder Trust (CRT)
The CRT begins with funding from cash or appreciated assets like stocks. During beneficiaries’ lifetimes or a specified period, the trust distributes income to family members or other beneficiaries. Upon their passing or when the term concludes, remaining assets transfer to the designated charity.
Charitable Lead Trust (CLT)
With a CLT, charitable distributions occur first. After the trust term ends, the remainder passes to beneficiaries. A significant advantage involves reducing the beneficiary’s tax burden while providing the estate a charitable deduction.
Asset Sale Benefits
Charitable trusts facilitate asset sales while minimizing tax consequences. When selling appreciated assets – real estate, individual stocks, or businesses – transferring them into the trust allows the trustee to sell without triggering capital gains taxes.
Disadvantages Worth Considering
- Establishment and ongoing maintenance require fees
- Most charitable trusts are irrevocable; changed circumstances may prevent fund access
- Family members might object to charitable giving over direct inheritance
- Future financial needs must be carefully evaluated
Critical Planning Points
Only fund a charitable trust with discretionary money you will not need later. Pay all debts first and ensure confidence in not requiring those assets. The contribution amount requires careful consideration alongside future expenses and overall financial status.
An estate planning attorney should meet with you and charity representatives to clarify intentions and confirm this approach suits all parties involved. Contact The Stegall Law Firm to discuss whether a charitable trust is the right fit for your estate plan and philanthropic goals.
