Setting Up a Charitable Trust

Estate planning enables you to distribute your assets while reducing your tax liability by taking advantage of a myriad of financial tools. One such financial tool is a charitable trust. A charitable trust allows you, your beneficiaries and a 501(c)3 non-profit organization to simultaneously benefit.

What is a charitable trust?

There are two types of charitable trusts. A charitable lead trust distributes a portion of your trust’s proceeds to a designated organization. You, or the trust, depending on whether it is a grantor or non-grantor trust, would then receive a tax deduction equal to the amount of the distribution. The remaining trust assets are distributed to your beneficiaries.

The second type of charitable trust is called a charitable remainder trust. This trust pays you and your beneficiaries first, then at the end of the term or upon your death, the remainder goes to the charitable organization. You will receive a tax deduction for the present value of the assets earmarked for the charity.

Charitable trusts are a smart way to reduce your tax liability. However, they are irrevocable trusts. Once you place the assets in trust and name your beneficiaries, you can’t change the terms—even if you suffer financial losses. It’s wise to have an experienced estate planning attorney help you determine whether this is the right option for you.

Factors to consider

Here are several items to consider before placing assets into a trust:

  • The charitable organization: Which organization would you like to benefit from your assets? You are required to choose an IRS-approved, tax-exempt organization for this purpose. This could include places of worship, universities and other nonprofit organizations.
  • Which assets to entrust: Because charitable trusts are irrevocable, choose which assets to entrust wisely. Some people use fine art, jewelry, stocks and similar non-pertinent assets to fund their trust. Keep in mind that the trust assets will be sold according to the trust terms, and then distributed accordingly. Once they’re gone, they won’t be available to pass down to others.
  • Beneficiaries and distribution: Finally, your attorney will help you determine a plan for distribution and who will receive the trust income. You may choose to make yourself a non-charitable beneficiary, or bestow that upon a loved one. Payments are usually distributed on a monthly basis, whether a percentage of the total value or a fixed annuity.

When you work Bart Leonardi, with an estate planning attorney, he will help you determine the right financial vehicles to achieve your goals. Charitable trusts are a good way to reduce your tax liability while you’re still alive—consider adding one to your estate plan.

For assistance with your estate planning and probate administration needs, call James Bart Leonardi, LLC today.

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