Charitable trusts are a legal arrangement placing real or personal property in trust for the benefit of a charity. A charitable trust can produce substantial tax benefits as well as an income stream for an individual and his or her estate. The community foundation does not advise on the tax benefits of a charitable trust, but we will work with your financial planner to establish the trust best meeting your financial situation and charitable goals.
Charitable Remainder Trusts – Is it Right for You?
A Charitable Remainder Trust has these Benefits
- Charitable income tax deduction
- Periodic income for life; support for spouse or other beneficiaries
- Offers investment diversification
- Delayed capital gains tax on gifts of appreciated property (contact a tax consultant for current laws regarding maximum percentage)
- Significant future support for the community foundation or your charity of choice
- Gift and estate tax savings
Types of Trusts
Charitable Remainder Trust (CRT) works as the name implies. You donate an asset such as real estate or stock to a charitable trust. The trust sells the donated assets and reinvests the proceeds in income-producing assets. The donor receives income payments for a lifetime, or a predetermined time period. At death, or the end of the trust, the remaining assets pass on to the community foundation for the charitable purposes you designate.
Two Types of CRT’s
- Charitable Remainder Unitrust (CRUT) – The designated beneficiary receives a stated percentage (at least 5%) of the fair market value of the trust assets at least annually.
- Charitable Remainder Annuity Trust (CRAT) – The designated beneficiary receives a set percentage of the initial value of the donated assets at least annually
Charitable Lead Trust (CLT) – Earnings from the assets placed in a CLT make regular income tax deductible gifts to the community foundation as the income beneficiary. When the trust terminates, the principal is returned to you or distributed to your children or other designated beneficiaries. The trust’s assets pass to the recipients at reduced tax cost, sometimes even tax-free. You can establish a CLT during your lifetime or through your will. A CLT shelters investment earnings from taxes and may offer gift, estate and generation-skipping tax benefits. This is a good choice if you wish to reduce your estate tax or delay your heirs’ receipt of an inheritance.
Retained Life Estates – Like many people in the Parsons area, your major asset may be your home or farm. You may irrevocably transfer the ownership of a home, farm or vacation home to the Community Foundation and retain the right to occupy it for your life. You and your family can continue to live in and enjoy your home (or vacation property) while giving its future ownership to the Foundation. You claim a charitable deduction in the year of the gift, with carryover privileges for up to five additional years.
The gift of the “remainder interest” is a charitable contribution in the year it is made, which may provide a substantial income tax charitable deduction. When the life tenancy ends, the Community Foundation becomes the property owner. Proceeds from the property’s sale, per your instructions, will either go into a charitable fund at the foundation or be distributed to other specified nonprofit organizations.
Keeping your needs and objectives in mind, we work with you to craft an agreement regarding responsibility for the property during your life tenancy term. Each potential life estate gift is assessed individually. We can provide you with a sample form (Life Tenancy Agreement) to review with your professional advisor.
Current Charitable Gift Trusts at PACF
Virginia Wommack Fund