Charitable giving is the act of donating to a charitable cause. It can be done both in life and in death, and it is most commonly done via a will or trust. Charitable giving serves the dual purposes of helping a charitable cause and giving the donor and their heirs a significant tax break.
A charitable trust is like any other trust, in that it is a property interest held by one person for the benefit of another. The only difference between a charitable trust and other types of trusts is that a charitable trust is always irrevocable. Once you establish a valid charitable trust, you cannot revoke the trust and reclaim your property interest. The most common type of charitable trust is a charitable remainder trust.
How Does a Charitable Remainder Trust Work?
Establishing a charitable remainder trust is a relatively simple thing to do. The following is a general guideline of how you can set up a charitable remainder trust and how it functions after it has been created:
- Set up a trust with a non-profit charity.
- Transfer the property you want donated to the charity's trust account.
- The charity functions as the trustee managing the property so that it produces income.
- The income is payable to you for a period of time that you designate in the trust instrument or until your death if you do not designate a time period.
- At the end of the designated period or at the time of your death, the property becomes the charity's possession.
- Advantages of a Charitable Trust.
There are several tax advantages to creating a charitable trust:
- Estate Tax: After the trust property formally becomes the property of the charity, the trust property is no longer considered part of your estate, so it is not subject to the federal estate tax.
- Capital Gains Tax: A charitable trust allows you to convert appreciated property, which is property that has increased in value since you acquired it, into cash without paying tax on the profit.
Do I Need an Attorney for Issues with Charitable Giving?
You should always contact an estate lawyer to plan the distribution of your estate. Lawyers understand the tax implications of estate planning, and will guide you through the difficulties associated with drafting wills and trusts. A lawyer will also help explain charitable giving, and how best to draft charitable trusts.