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A Guide to Charitable Trusts

When people are thinking about who they wish to give their assets to, they often consider friends and family. But what many fail to consider as an option is charity. A charitable trust is a way that you can set up your assets so that it is not only beneficial to you and your loved ones, but also to a charity or charities of your choosing. There are certainly advantages to a charitable trust. Here’s what to know about them.

How Do Charitable Trusts Work?

There are two main types of charitable trusts:

  • Charitable Lead Trusts; and
  • Charitable Remainder Trusts.

While both types of trusts benefit a charity or charities that must qualify with the IRS in order to receive charitable deductions, they both serve different purposes.

Charitable Lead Trusts vs. Charitable Remainder Trusts

A Charitable lead trust first distributes part of its proceeds to a charity and you will receive a charitable donation tax deduction in the same amount. The remainder is then distributed to your beneficiaries.

A Charitable remainder trust on the other hand provides you with an income from the distribution of any non-income-producing assets that you placed in the trust. Then you’ll receive a charitable donation tax deduction based on the fair market value of the remainder of the assets that were allocated to the charity. At the end of the term listed in your trust or upon your death, the charity you chose will receive the remainder of assets.

Benefits of a Charitable Trust

It’s important to note that as soon as a charitable trust is created it becomes irrevocable. The benefit of creating a charitable trust though, is that if you have high-value assets you don’t need in retirement, the trust has tax benefits and incentives. By moving assets into this trust, you can avoid paying capital gains on things like stocks or real estate should they be sold at an increased value. Charitable trusts also help to reduce your estate taxes by reducing the size of your estate.

Additionally, with both types of charitable trusts there are things that you can do, strategies that you can employ, to maximize the benefits. For instance, you can:

  • Set up a donor-advised fund to provide you with flexibility to change a charity you select or add a new charity; or
  • Replace assets for beneficiaries to do things like buy a life insurance policy and use the income produced by a charitable remainder trust to pay the policy premiums and using the remainder to fund the charity.

While there are many benefits to creating a charitable trust, the process can prove very complicated if you don’t have a clear understanding of what you are doing.

Biddle Law Can Help

If you are looking to establish a charitable trust or have questions about an existing one, a knowledgeable and experienced California estate planning attorney who knows the current laws and has experience dealing with these types of trusts can help.

At Biddle Law, we are here to answer all of your questions and walk you through the process. We care about you and your wishes and want to help in any way we can. To learn more or to schedule a consultation, contact us today!