Provide for family today and charity tomorrow with a CRT

Take the reverse approach with a CLT

Gain an income tax deduction with lifetime charitable gifts

Making gifts over time

Do well by doing good

Sharing your estate with charity will allow you to cut your estate tax bill. Direct bequests to charity are fully deductible for estate tax purposes. Leave your entire estate to charity, and you’ll owe no estate taxes at all. In addition to providing tax advantages, contributing to charity is a good way to leave a legacy in your community or to instill in your heirs a sense of social responsibility.

Provide for family today and charity tomorrow with a CRT

Through your will you can create a charitable remainder trust (CRT) that will pay income for a period of time to beneficiaries you name. At the end of the stated period, the remaining trust assets will pass to your charitable organization(s) of choice. For example, let’s say you want to make sure your elderly father is provided for in case you precede him in death. From a CRT created upon your death, your father can receive annual distributions until he dies. At that time, the remainder passes to charity. You get what you wanted — you provide for both your father and charity. And, because you’re making a partial charitable donation at the time of your death, your estate receives a deduction for a portion of the trust’s value.

The size of the estate tax deduction is determined based on the value of the trust assets, the trust term and the amount to be paid to the beneficiary. The value of the interest given to the noncharitable beneficiary is included in your estate.

Take the reverse approach with a CLT

Now let’s reverse the situation: You wish to provide an income stream to a charity for a set period after your death, with the remainder passing to your beneficiaries. The charitable lead trust (CLT) provides a way to do this — and obtain a partial charitable deduction for your estate.

Gain an income tax deduction with lifetime charitable gifts

You can use the above techniques during your lifetime as well. And if you create a charitable trust during your life, you may be entitled to an income tax deduction for the portion that government tables calculate to be the charitable gift. This way, you can reduce both your income and estate taxes.

The benefits are even greater if you fund the trust with appreciated assets. Let’s say you transfer appreciated securities to a CRT. After receiving the stock, the trustee sells it and reinvests the proceeds.

Because a CRT is tax exempt, no capital gains tax is owed at the time of the sale. The trustee is able to reinvest the full proceeds, potentially increasing the annual distributions to you or your chosen beneficiaries. Warning: Some or all of the amount distributed to the beneficiary may be taxable.

Making gifts over time

If you don’t know which charities you want to benefit but you’d like to start making large contributions now, consider a private foundation or a donor-advised fund. (See the Planning Tip “Leave a legacy with a private foundation or donor-advised fund.”) •


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