Estate planning involves more than just deciding to whom you want to leave your assets after you pass away. It is also an opportunity to think about the legacy you want to leave. What causes are near and dear to you?

Charitable trusts can play an important role in your estate planning and tax planning considerations while providing funds for nonprofit organizations to carry out their mission. In addition to doing some good, a charitable trust reduces your estate tax bill and can potentially do so without reducing your family’s inheritance. Plus, you can enjoy the benefits of a fixed income stream with tax reduction during your lifetime.

The Albany and New York trust lawyers at Pierro Connor & Strauss, LLC can help you create a charitable trust to meet your estate planning needs while supporting the causes that are most important to you.

What is a Charitable Trust?

Per the IRS, a charitable trust is a non-tax-exempt trust with its unexpired interests devoted to charitable purposes. Charitable trusts can be set up during your lifetime or in your testamentary documents to take effect at death.

Depending on the timing of the gift and the type of trust, under specific sections of the IRS Code, a charitable gift, estate and/or income tax deduction may be allowed. Only those organizations registered with the IRS as qualified charities qualify for inclusion in a charitable trust.

As with any trust, a charitable trust is a separate legal entity. Once you place the assets in the trust, they no longer belong to you but rather to the trust.

Charitable Trusts Team

Louis W. Pierro, ESQ.

Louis W. Pierro, ESQ.

Richard Rothberg, ESQ.

Richard Rothberg, ESQ.

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Couple with a calculator working out the details of their charitable trust

Types of Charitable Trusts

Your lawyer can help you determine the best type of charitable trust for your needs. Keep in mind that these trusts are irrevocable, which creates the opportunity for tax advantages. While your chosen trustees carry out the instructions you have written in the document, you may still be able to change the beneficiaries of the trust.

Charitable Lead Trusts

These trusts exist for either a specific number of years or for the lifetime of the donors. “Lead” refers to this period of time. During the lead time, the named charitable organization receives an annual fixed annuity or unitrust amount. Once the lead period ends, the charity no longer receives payments.

The principal remaining in the trust then becomes payable to your named individual beneficiaries. In an annuity trust, the charity receives a fixed amount based on the initial contribution to the trust. In a unitrust, the charity receives a fixed amount based upon the value of the trust assets on either December 31 or January 1 of each year the lead period is in existence.

Charitable Remainder Annuity Trusts

A charitable remainder annuity trust is a good way to guarantee yourself a steady income stream while the principal eventually goes to charity. Also known as a CRAT, this type of trust pays a fixed annuity amount annually to one or more designated recipients. Think of it as the opposite of a charitable lead trust. With a CRAT, at least one of the recipients is not a charity. That recipient is often you or your spouse or another family member.

As the grantor, you turn the assets over to a trustee to be held for the benefit of the recipients. All non-cash assets are then sold without triggering a taxable event, the proceeds of which are then used to purchase investments that will optimize the recipients’ income. The noncharitable beneficiary receives the same amount of income each year, it must be at least 5 percent of the trust’s value, and no more than 50 percent of the fair market value of the assets. The recipient must pay ordinary income taxes on the funds received.

A CRAT lasts until the beneficiary’s death or for a period of 20 years or less. At that time, the remaining funds are then donated to the charitable beneficiary. If the beneficiary dies in debt, the funds in a CRAT are not available to creditors and pass to the charity.

Charitable Remainder Unitrust trust

A “CRUT” differs from a CRAT in that the trust’s value is revalued annually. That changes the amount of the annual distribution to the noncharitable beneficiary. Unlike other charitable trusts, you can continue contributing to the trust after its inception. Those contributions also affect its value.

Benefits of Charitable Trusts

A charitable trust can reduce or even eliminate the taxes on your estate or your personal taxes. For instance, if you place highly appreciated real estate or securities into your charitable trust, you avoid paying capital gains taxes when these assets are sold.

With a CRAT, the donor receives a one-time tax deduction based on the value of the assets placed in the trust. A CRAT or CRUT provides income to you or another named beneficiary.

Charitable Trusts and Nonprofits

As noted, only charities registered with the IRS qualify for a charitable deduction. That is why the first order of business is to verify that the organization you wish to support is a bona fide nonprofit charitable organization. Transferring the remaining interest of a charitable trust to a non-tax-exempt organization will not provide the benefits of proper charitable planning.

Contact a Charitable Trust Lawyer

A New York and Albany tax planning attorney at Pierro, Connor & Strauss, LLC will guide you through the complicated process necessary to establish a charitable trust.  Schedule a consultation today to discuss your estate planning options. Create the legacy you want to leave behind.

Pierro, Connor & Strauss, LLC provides legal services to clients in the Capital Region including Albany, New York City, Long Island, Westchester, Hudson, Utica, Lake Placid, Clark, NJ, Fort Lee, NJ, Falmouth, MA and Clearwater, FL.

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