If you spend any time watching PBS, you have no doubt noticed the sponsorship credits at the beginning of programs listing one or more charitable trusts. Contrary to popular opinion, however, you don’t have to be fabulously wealthy to establish one. Charitable trusts can, in fact, serve as a beneficial component of any family’s estate plan—providing both flexibility and control over your planned giving.
In addition to the obvious benefits of helping those in need and supporting the work of organizations you feel passionate about, charitable trusts may provide income tax deductions based on the value of your gift, and they can reduce both estate taxes and gift taxes depending on the structure you choose. If you have highly appreciated assets such as stocks or real estate, you may be able to sell the assets within a tax-exempt charitable trust and preserve the full value of those assets, rather than having them reduced by capital gains taxes, had you sold the assets outside the charitable trust and then made a direct gift to the charity.
There are two basic types of charitable trusts: charitable lead trusts (CLTs) and charitable remainder trusts (CRTs), with the primary difference being who receives the income stream during the life of the trust and who receives the remaining assets when the trust ends.
Charitable Lead Trusts
With a CLT, you transfer property to a trust that is set up to benefit a qualified charity of your choice. The charity receives the income from the trust for a set period of years (or the life of the donor), after which time the assets remaining in the trust are passed back to either the donor or his/her beneficiary as stipulated by the terms of the trust. If you are currently making regular gifts to a favorite charity (or would like to make regular gifts to a charity), it may be advantageous to use a CLT for those gifts.
Charitable Remainder Trusts
CRTs are essentially the mirror opposite of CLTs. The trust pays you, you and your spouse, or someone else you’ve chosen an income for life or a set period of years. The trust ends at the death of the last income beneficiary (or term of years, if that’s what the trust specifies), and the charity receives the remaining assets. A CRT funded with appreciated low-basis property allows the trust beneficiary to benefit from the sale of that property without paying capital gains tax.
CRTs can also provide a simple way to generate income from assets or property that wouldn’t otherwise do so—allowing the trust to tax-efficiently sell the assets and provide you with an income stream (either now or in the future) with the designated charity receiving the remaining assets.
It’s important to note, however, that there are costs associated with setting up and maintaining a charitable trust, and assets placed in the trust are irrevocable. Additionally, the IRS has specific rules governing the percentage of trust assets that must be received by the charity in order to qualify for tax benefits. So make sure you have both a strong charitable intent as well as sufficient other assets to sustain you throughout retirement.
If you have a vision but not a plan for your charitable giving, SunTrust can help you develop one. Our trust advisors will work with you to develop and to implement a comprehensive plan designed to help you meet your philanthropic objectives while ensuring the long-term financial security of both you and your heirs.