One of the mainstays of the holiday season is the emphasis on giving. Whether it’s the bell ringers for the Salvation Army outside the grocery store, or nearly every cashier you pass asking if you’d like to round up your purchase to donate to that particular store’s charity, the holidays are the time when giving is most often on our minds and agendas.
Although we’re past the holiday season and into the new year, you don’t have to set your charitable intentions to the side for 11 more months. In fact, charitable giving can be a big part of your estate plan with the inclusion of two different kinds of trusts—Charitable Remainder and Charitable Lead. In this article, we’ll explain the differences between these two trusts to help you decide which might be best for your unique situation.
Charitable Remainder Trust
A charitable remainder trust is an irrevocable trust (meaning it cannot be modified after you create it) that allows you to specify one or multiple charities that, upon your death, will receive the remainder of your assets (hence the name) after your beneficiaries have received their portion. The payments from this trust, paid annually, range anywhere from 5–50% of the total assets in the trust and can either last for the lifetime of the recipient or for a specific period of time, though no more than 20 years.
Charitable Lead Trust
A charitable lead trust works in almost the opposite way. In this instance, the trust disperses assets to your named charity first, and your beneficiaries receive the remaining assets either upon your death or at the end of a specific term, just as it works in the example above. While not true in all scenarios, a charitable lead trust usually comes with more gift and estate tax benefits as compared to a charitable remainder trust.
These trusts are attractive components to your estate plan because they allow you to reduce or avoid both estate and capital gains taxes. By funding these trusts with appreciated investments, your investors can avoid triggering a capital gains tax on any sale of those assets. Plus, by moving assets into the trust, you reduce the overall size of your estate, thereby reducing your estate taxes.
Your estate plan is all about your legacy and continuing to provide for your family after you’re gone. However, if you’d like to expand your legacy to include gifts to charitable organizations after you’re gone, incorporating one of these charitable trusts could be a great addition to your estate plan.
If you’d like to talk more about these trusts and have us include one into your estate plan, contact us today and let us help you.
Dahl Law Group
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