Giving Strategies That Can Give Back

A recent survey in 136 countries suggests that spending money to help others may be a universal source of personal happiness.1 Americans seem to take this to heart, giving more than $290 billion to charity in 2010, even with the slow economy.2

When making a substantial donation to a specific charity, you might consider trust strategies that may allow you to give generously while potentially benefiting yourself and your heirs. A good first step is to understand the basics.

Charitable Remainder Trust (CRT)

In a CRT, you (the grantor) can donate money, securities, property, or other assets to the trust and designate an income beneficiary — even yourself — to receive payments of a specified amount for a set period or your lifetime (or the lifetime of your surviving spouse or designated beneficiary). Payments must be made at least once a year and may be fixed or variable depending on the type of CRT you use. Upon your death (or the death of your surviving spouse or designated beneficiary), the assets in the trust go to the charity.

Although the annual trust income is usually taxable, you may qualify for an income tax deduction based on the estimated present value of the remainder interest that will eventually go to the charity. Once assets are in the trust, the trustee may be able to sell them and reinvest the proceeds without incurring capital gains taxes.

Charitable Lead Trust (CLT)

Assets placed by the grantor in a CLT pay income to the designated charity until the trust ends (typically, upon the death of the grantor). The remaining assets are then returned to the grantor or the grantor’s heirs. Not only could this strategy provide an income stream to your favorite charity, but it might help reduce, or in some cases eliminate, estate and gift taxes on appreciated assets that go to your heirs.

Both types of trusts are irrevocable, so assets cannot be removed from the trusts once they are donated. Not all charities are able to accept all possible gifts, so it would be prudent to check with your chosen organization before making a donation or establishing a charitable trust. The type of organization you select could also affect the tax benefits you receive.

The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced Naperville estate planning professional and your legal and tax advisors before implementing trust strategies.

1) National Bureau of Economic Research, 2010
2) Giving USA 2011, Giving USA Foundation

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

Monday, January 23, 2012