Charitable Trusts: How to Give Back and Reduce Taxes

Charitable trusts present a unique opportunity to contribute to causes you care about while also providing significant tax benefits. They are specially designed legal entities that hold and manage assets for charitable purposes, all while offering a way to reduce, delay, or even eliminate tax liabilities.

There are two primary types of charitable trusts: Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs). Each serves a different purpose and provides different benefits.

Charitable Remainder Trusts (CRTs) are designed to provide income to you (the donor) or other beneficiaries for a certain period, after which the remaining assets go to a chosen charity. Contributions to a CRT are partially tax-deductible, and the trust itself doesn’t pay capital gains tax, making it a good choice for highly appreciated assets. Additionally, the income you receive can be structured to be consistent or variable, depending on the trust’s structure.

On the other hand, Charitable Lead Trusts (CLTs) are almost the opposite. The charity receives income for a set period, and the remaining assets go to non-charitable beneficiaries, such as your heirs. This can be a powerful tool for reducing estate or gift taxes that might otherwise apply if you were to transfer a significant amount of wealth to your heirs directly.

Setting up a charitable trust isn’t just about tax benefits; it’s also about creating a lasting legacy. It allows you to support the charitable causes close to your heart, while also providing financial benefits for you and your heirs.

However, the complexity of charitable trusts calls for expert advice. To ensure that a charitable trust aligns with your overall estate and tax planning goals, consult with an experienced and qualified estate planning attorney. With careful planning, you can use charitable trusts to give back generously while wisely managing your tax liabilities.

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Timothy P. Murphy

Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.

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