Additional charitable planning opportunities are available through the use of trusts. A trust is a fiduciary relationship wherein one party (the “trustee”) maintains control over assets for the benefit of another (the “beneficiary”). Charitable trusts enable their settlors (persons that create and fund the trust) to provide support to causes they care about, such as education, social welfare, the arts, education or animal welfare, while receiving a reduction in tax liability. At Katz Baskies & Wolf PLLC, we are proficient in using trusts to help our clients reach their financial and humanitarian aspirations.
Types of Charitable Trusts
There are different types of charitable trusts that can be utilized for varying purposes. Some of the most popular in estate planning include Charitable Lead Trusts and Charitable Remainder Trusts.
Charitable Lead Trusts (CLTs)
With a CLT, the charity has the “lead” interest in the assets placed in the trust. For an established period of time, the CLT pays money to a charity (or charities). Once that time period has ended, the remaining assets are paid to or in trust for the named beneficiaries (typically the donor’s family). This type of planning is particularly beneficial to settlors and beneficiaries with a large amount of financial resources that are not in immediate need of the monies funding the trust. There are two types of CLTs:
- Charitable Lead Annuity Trust (CLAT): A CLAT makes fixed annuity payments to a charitable organization. The payment amount does not vary, and assets are only valued at the time the trust is created. CLATs are very effective for clients that want to balance the desire to benefit their communities while also planning for their families. While the IRS uses tables that assume the CLAT will “zero out” at the end of the term, there will be a benefit to the family if the return on assets exceeds the IRS assumptions. It is an effective way to transfer wealth free of estate and gift tax to a next generation.
- Charitable Lead Unitrusts (CLUT): The amount a CLUT pays varies according to the value of the assets held in trust, as the payment is a fixed percentage.
Charitable Remainder Trusts (CRTs)
A CRT is an irrevocable trust that allows the donors, or their designated beneficiaries, to receive payments for a specified amount of time while their assets are being used to fund the trust. In these trusts, the charity has the “remainder” interest.
- Charitable Remainder Unitrust (CRUT): A CRUT makes annual fixed percentage payments to its beneficiary (which may be the donor).
- Charitable Remainder Annuity Trust (CRAT): A CRAT pays a fixed annual amount to its beneficiaries (which may be the donor).
Speak With A Charitable Trust Planning Attorney at KBW Today
Contact our firm for more information on how we can use charitable trusts to help you support causes you care for while also obtaining meaningful tax benefits. We offer comprehensive estate planning and are eager to put our knowledge to work for you.