Anyone interested in assisting a favorite organization by making a significant financial donation, while potentially reducing their personal tax liabilities may wish to consider establishing a charitable trust. Simply stated, a charitable trust is an irrevocable legal construct in which property is managed by one person or entity for the benefit of a charitable organization or purpose. This type of trust can be created during a person’s lifetime, or they can be testamentary in nature, meaning that they commence existence upon the donor’s death. Two main types of charitable trusts worth considering are the charitable lead trust and the charitable remainder trust.
A charitable lead trust is a legal structure through which payments or donations of either a fixed dollar amount or of a portion of the trust’s principal amount are made to the selected charity. Once the trust’s term is completed, the funds remaining in the trust can revert to the donor or to any heirs or beneficiaries chosen by the donor. It is sometimes possible for the donor of a charitable lead trust to realize a current income tax deduction or a gift tax deduction for establishing this type of gift, but that will be determined by the type of structure ultimately selected. While a non-grantor trust will not result in a present income tax deduction, it will remove the asset or a portion of its value from the donor’s taxable estate.
Charitable remainder trusts are, in essence, a charitable lead trust in reverse. Remainder trusts provide a stream of trust income to designated beneficiaries of the donor, and a public charity or private foundation receives the remainder amount at the termination of the trust term. The trust term may be defined by lives in being or a term of years. This type of trust is typically tax-exempt. In most cases, donors can claim an income tax deduction and can possible avoid immediate capital gains tax liability at the time the trust disposes any appreciated trust asset.
Please note that the above material is for informational purposes only and is not intended to constitute legal advice.
Before making donations or charitable trusts, contact the Florida Probate Lawyer to set up a legal consultation.