Charitable Gifting that Retains Original Assets
Charitable lead trusts are allow you to benefit a charity now rather than later. You may have heard about some charitable trust strategies before but decided against them because you wanted to make an immediate gift to charity.
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With a charitable lead trust, your gift can have an immediate impact, and you’ll be entitled to other benefits as well. These trusts will enable you to take advantage of tax benefits and still make a significant gift. If you are accustomed to making outright contributions to your favorite charity, or if you typically sell an investment and give all or a portion of the money to charity, you may be attracted to the special advantages of using a charitable trust.
Tax Benefits of this Charitable Gifting Choice
Avoiding capital gains taxes on an appreciated asset is a very appealing benefit for investors. It is also a way for charitable organizations to receive a much larger donation because they are not required to pay tax on capital gains. Once the trust is established and the assets are transferred, the trustee can then sell the assets and reinvest the funds.
You also receive an immediate charitable income tax deduction based on the "life expectancy" of your gift. With a charitable lead trust, you are giving the charity the income from the asset and not the asset itself. Your deduction will be based on the rate of return the charity can expect to receive, the duration of the trust, and the IRS tables used in the calculation. Your write-off will be limited to a portion of adjusted gross income but can be carried forward to future years.
Personal Benefits of this Charitable Gifting
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A charitable lead trust may also help reduce family issues over inheritance. The income from the reinvested assets goes to the charity which receives distributions for the duration of the trust. You may specify a set number of years or the life of you or someone else. At the end of this period, however, the asset would revert back to you or your family, for example. If you were to actually gift the asset to the charity upon your death, your heirs might feel somewhat cheated. By giving income to the charity during your lifetime while retaining the asset within your family upon your death, you may avoid much of this potential controversy.
If you are interested in increasing your gift to a charity and your tax benefits during your lifetime, a charitable lead trust may enable you to accomplish your goals.
By taking the time to plan your charitable gifts, you may be able to take advantage of some special tax benefits and make charitable giving a real win-win situation.
Keep in mind, however, that you should seek professional advice from an attorney before establishing such a complex trust.