Charitable Remainder Trusts Popular Charitable Gifting

Last year, individuals contributed $161 billion to charity - that’s roughly 76 percent of all contributions made.

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As the holiday season approaches, you may be wondering how a charitable donation from you could best be used to benefit both others and yourself. Charitable trusts can help you increase the value of your donation by reducing your costs in capital gains, income, and estate taxes. As not all charitable organizations can make maximal use of all possible gifts, it is prudent to do your research. The type of organization you select can affect the amount your chosen charity benefits from your gift and the tax consequences for you.

Different Types of Trusts Charitable Gifting

A charitable remainder trust (CRT) is an irrevocable trust whose beneficiary is a charitable organization. Throughout his or her lifetime, the donor receives regular payments (fixed or variable) from the trust. When the donor dies, the charity receives the remaining principal.

Assets donated to a CRT are not subject to capital gains taxes and, if eligible, will not be included in the donor’s taxable estate. In addition, the donor may take an income tax deduction (subject to certain limits) on the value of the assets during the year in which the trust is created.

Charitable Lead Trusts

A charitable lead trust (CLT) is almost the opposite of a CRT. With a CLT, the charity receives regular income generated by the trust throughout the donor’s lifetime. When the donor dies, his or her heirs receive the assets in the trust.

Pooled Income Funds

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A pooled income fund is an irrevocable trust to which several donors may contribute. Funds are administered by a charitable organization and pay donors regular income for life. When a donor dies, his or her contribution to the fund becomes the property of the charity. With this type of fund, donors are not subject to capital gains taxes and can reduce their current taxable income and estate.

Maximize Charitable Gifting Benefits for All

This time of year many people feel inclined to help others and potentially improve their own tax situations. If the season has kindled your desire to give, consider how charitable trusts can help both you and the recipient make the most of your donation.

Before taking action, be sure to consult with your tax professional for specific information pertaining to your situation.

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