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A charitable trust is an important part of any philanthropist’s estate plan. Luckily, you don’t need to be a millionaire to have a charitable trust, and you can make a big difference with a minimal amount of money. The charitable trust is the best way to financially benefit you or your family while also contributing to a noble cause or charity of your choice.
If you’re looking to protect your investment into a charity or even your community, a charitable trust is for you. You can even create a trust that considers your beneficiaries and your charity of choice with the same pool of money.
It’s easy and simple to set up a charitable trust. It’s best to begin by consulting with a trusted estate planning firm to help you determine an individualized strategy for investing. Once you’ve established a trusted relationship, you can begin exploring how and why a charitable trust might work for you.
For starters, you’ll need to calculate just how much you’re able and willing to invest into your trust. While a trust is a financially savvy decision, it is important to consider that once an investment is made into a charitable trust, it cannot be removed. As a result, you’ll need to plan carefully with your estate planning firm as to what and how much you’ll place into the trust. You can invest a multitude of different assets including cash, stock, business interests, art, real estate, or other assets.
The next step involves setting up that trust with a financial institution. This includes banks and investment firms. You’ll need to decide on how frequently payments are made and what value each of those payments will have. Your estate planning firm will help you through the process wherever needed.
Next, you’ll designate the charity, community, or cause that will benefit from your charitable trust. Your charity will need to be approved by the IRS. Choosing which charity to invest in is an important personal decision that requires extensive reflection and research.
Once you’ve determined the value and charity of your trust, you’ll need to consider your trust’s beneficiaries outside of the charity. It’s important to remember that once you’ve invested in a trust, you’re unable to regain control of that money, so be sure to plan accordingly.
Your trust will be invested so that it continually accrues value and benefits both your charity and your beneficiary, unlike a one-time donation which provides little to no long-term benefit to the donor.
Your beneficiary can be a close friend or family member, or you can even designate yourself. A trust is a strategic way to ensure that money meant for a beneficiary is tamper-proof. You can determine whether the beneficiary receives an exact dollar amount periodically from the investment or a percentage of the trust’s overall value. This allows you to safeguard loved ones who you may determine can only handle a fixed amount of money or who need to mature before payments increase. This will continue to pay throughout its lifetime, providing tax benefits and value to yourself or your loved ones.
Charitable trusts are split-interest trusts, which is to say that they benefit more than one party (in this case, a charity and a beneficiary). A split-interest trust can take multiple forms.
A Charitable Remainder Trust, or a CRT, is the trust that is primarily used by estate planners. In a CRT, the trust makes payments to your non-charitable beneficiary before the charity receives the remaining assets. The charity acts as the trustee for the duration of the trust’s life and must invest and manage the fund while protecting its assets. The income that the beneficiary receives is paid by the charity for the beneficiary’s lifetime or a set number of years. Afterward, the charity will receive the remainder of assets from the trust.
In a Charitable Lead Trust, or CLT, a charity receives the benefits first through income for a set number of years or the giver’s lifetime. Afterward, the remainder goes to your non-charitable beneficiary. For example, you can direct charity payments at determined intervals for 10 (or more) years, and then have the remainder go to your children. In this trust, the primary benefit is a charitable deduction on your taxes for the IRS-determined value of the gift.
A charitable trust allows you to invest your assets into a charity of your choice while providing income from those investments to your beneficiaries. If your aim is to provide for your beneficiaries for the foreseeable future while also supporting a worthy cause of your choice, a charitable trust is a stellar choice.
Feel Great About Giving: A trust allows you to make your money useful to a cause you feel passionate about. If you establish a young beneficiary, they can recognize the importance of charitable giving from an early age.
A Valuable Source of Income: A trust also allows you to continually receive income from a protected fund. The strategically managed trust will provide a fixed dollar amount or percentage of value that can benefit you or your family for an extended period.
Enjoy Extensive Tax Benefits: A charitable trust’s assets are not part of the grantor’s taxable estate upon death. As a result, those assets won’t be subject to an estate tax. In addition, appreciated assets aren’t subject to capital gain taxes. Most importantly, you can take an income tax deduction for the value of your gift and spread it over several years.
Create More Value: If you have a property that isn’t making a profit, you can reinvest it into a charitable trust without paying a tax on the income. You can even transfer a stock that has appreciated into a charitable trust and sell it without paying a capital gains tax.
Interested in learning more about how to setup a charitable trust for your estate? Contact one of our Toledo, OH attorneys today and schedule a free consultation!