Is philanthropy part of your daily life? Are the charities to which you donate your time and money important to you? Do you wish to continue to contribute to those charities even after you are gone? If you answered “yes” to these questions, you should include charitable gifting in your estate plan. The Los Angles trust lawyers at Collins Law Group explain how to use a trust to make charitable gifts.
Can’t I Just Make a Charitable Gift in My Will?
The first question people ask when discussing the use of a trust for charitable gifting is often “Why can’t I just make a charitable gift in my Last Will and Testament?” It isn’t that you cannot use your Will to make charitable gifts – you can use your Will; however, there are several reasons why it is not advisable to do so. Using your Will to make charitable gifts means you will almost surely miss out on tax benefits that a trust offers. Even more important for many people is the fact that when you make a direct gift in your Will you give up the ability to control how that gift is used. Even more compelling for some people is the reality that a gift left in a Will is impersonal and does nothing to pass on your legacy of philanthropic gifting to the next generation.
How Does a Charitable Trust Work?
Using a trust for charitable gifting allows you a considerable amount of control over how and when gifts are distributed to your chosen charities. A trust also offers additional estate planning and financial advantages that making direct gifts in your Will doesn’t offer. You can create a trust that is devoted entirely to charitable gifting or one that includes both charitable and non-charitable beneficiaries, known as “split-interest” trusts. Specifically, charitable lead trusts (CLT) and charitable remainder trusts (CRT) are specialized trusts that allow you to gift to both charitable and non-charitable beneficiaries within the same trust.
A CLT first makes distributions to a charitable beneficiary for a specific period or for the life of a person. At the end of the designated period, the remaining assets, plus any interest that has accrued, are distributed to the non-charitable beneficiary. A charitable remainder trust (CRT) works in reverse with the non-charitable beneficiary receiving distributions first and the remainder (plus interest) going to the charitable beneficiary. The non-charitable beneficiary will receive payouts at least annually for your lifetime, the life of another person, or for a set number of years.
Advantages to Using a Trust for Charitable Gifting
As mentioned above, a trust makes a better vehicle for making charitable gifts than your Will for several reasons. There are also additional advantages to creating a charitable trust, including:
- Preserving the value of highly appreciated assets. If you have significantly appreciated assets including non-income-producing property, a charitable remainder trust allows you to take that property, sell it within the trust as tax exempt, and preserve the full fair market value of the property, thereby avoiding the payment of large capital gains taxes which ultimately diminishes the value of the gift.
- Reducing gift and estate taxes. Usually, once you fund a charitable trust, these assets are out of your estate for estate tax purposes. If a contribution to a CLT occurs upon the death of the donor, the donor will be eligible for an estate tax deduction for the value of the interest paid to the charity. In addition, if you contribute to a non-grantor CLT during your lifetime, you may be eligible for a gift tax deduction based on the interest going to the charity. However, if the remainder beneficiary on a CLT is not the donor, then the donor might be subject to gift tax on the value of the remainder interest.
- Creating income from non-income-producing property. You can fund a charitable remainder trust with non-income-producing property whereupon the tax-exempt CRT can sell the property, preserving the charitable remainder, and, at the same time, provide an income stream back to you, as the donor.
- Privacy. If you prefer to keep your philanthropic endeavors private, a trust is always a better option because the terms of your Will become a matter of public record the moment your Will is submitted for probate after your death. A trust, on the other hand, does not go through the probate process. As such, the terms of a trust remain private.
Contact Collins Law Group
If you need more information about trust for charitable gifting, consult with an experienced Los Angeles trust lawyer. Contact Collins Law Firm by calling (310) 677-9787 to register for one of our FREE estate planning workshops.