Aug 4, 2017

Posted in Blog - "Altman Speaks"

Is a Charitable Trust Right for You?

If you are thinking about setting up a charitable trust, take time to thoughtfully consider whether it is right for you. Charitable trusts are irrevocable — you cannot change your mind and reverse your decision once the trust becomes operational.

What is a charitable trust?

A charitable trust is a trust that is designed to hold and protect assets for charitable purposes. Charitable trusts can be set up for the purposes of advancing education, to aid in poverty relief, or any other matter that is for the benefit of the public.

How charitable trusts work

Once a charitable trust is set up, the assets that you wish to donate to a charity are then transferred into the trust. Keep in mind that the charity must be an approved charity by the Internal Revenue Service (IRS). The designated charity then acts as the trustee of the trust, managing or investing the property that you have donated so that it generates income for you.

Part of the income generated from this investment is then paid to you — or an individual you have named – for the amount of time specified in the trust document, i.e. a certain number of years, until your death, etc. At the end of this designated time period, the property goes to the charity.

Tax advantages of charitable trusts

Charitable trusts offer several tax advantages: income tax, estate tax, and capital gains tax. Let’s take a look at all three:

  • Income Tax: the value of the charitable gift can be deducted over a five year period. However, the value of the gift is the amount of the gift minus the income you expect to receive from the property.
  • Estate Tax: when the trust property is donated to the charity – based upon the payment period specified in the trust – you are no longer subject to federal estate tax since the property is no longer part of your estate.
  • Capital Gains Tax: charities typically sell any non-income-producing assets, using the earnings to purchase property that will generate income for you. When the property is sold, those earnings remain in the trust. Because charities are not subject to capital gains tax, you will not be taxed on your earnings.

You give up legal control

Charitable trusts are not for everyone. While they enable individuals to make generous donations to charity, and provide a significant tax break to you and your heirs, you must relinquish legal control of the trust property. Once a charitable trust becomes operational, it cannot be revoked, regardless of your personal circumstances.

Consult an experienced Maryland estate planning attorney for guidance you can trust

Some investment tools can be modified to reflect life’s changing circumstances. That is not the case with charitable trusts. Before making the decision to create a charitable trust, consult with an experienced estate planning professional to determine whether it is right for you. The Maryland estate planning attorneys at Altman & Associates are experienced and knowledgeable in all areas of estate planning – it is all we do. For more than 40 years, we have helped individuals and families develop estate plans that reflect their long-term goals. Arrange a meeting with one of our estate planning attorneys today by contacting our office at 301-468-3220 or online. With convenient offices in both Rockville and Columbia, we are here to help guide your financial future.

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