Should You Include Charitable Giving in Your Estate Plan?

Including charity in your estate plan can be a win-win proposition. Certain strategies involving trusts, for example, may provide you with tax benefits.

Consider a Trust. A charitable remainder trust (CRT) is an irrevocable, tax-exempt trust in which you place assets to provide income for you during a specific period of time; i.e., your lifetime or a term not to exceed 20 years. At the end of that period, the remaining assets will be turned over to your selected charity. The trust can be funded with many assets, including bonds, mutual funds, stocks, and real estate.

A CRT may potentially offer a variety of benefits. For example, selling appreciated stock may result in paying substantial capital gains taxes. By transferring the stock to a charity through a CRT, the trustee may avoid gift, estate, or capital gains tax consequences. The trustee can then set up an investment that may provide a steady income stream for you. In addition, you may be eligible for a current income tax deduction based on the present value of the trust’s remainder interest.

It’s Your Choice. A CRT must be designed in the form of either an annuity trust or a unitrust. There are potential advantages and disadvantages with each.

Annuity trusts:

• flexibility in payment options
• fixed income payout based on initial fair market value of assets
• does not allow additional contributions
• inflation risk (the fixed payout may not keep up with inflation)

Unitrusts:

• flexibility in payment options
• variable income payout based on fair market value of assets
• allows additional contributions
• market risk (variable payout can rise or fall with changing value of underlying assets)

Another Option. If you desire to leave assets to your heirs and give to charity, you might consider a charitable lead trust (CLT). You specify a set number of years during which a fixed percentage of the value of the assets in the trust will be paid to a charity. You then pay discounted gift taxes on assets transferred to the trust and do not receive a charitable deduction. However, your heirs will receive trust assets free of estate taxes.

These are just some of the ways to include charitable giving in your estate plan. Ask a financial advisor for more information on these and alternative ideas.

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