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Tax advantages of charitable trusts

On Behalf of | Jun 8, 2017 | Uncategorized

When it comes to creating your legacy, there are many facets to consider. An estate plan is an excellent way to make your wishes known and provide for the people and causes near and dear to your heart.

Your generosity to the causes you care about is an important part of creating your legacy, and even if you aren’t ready to make a significant gesture by establishing a charitable trust, you can still familiarize yourself with the concepts.

There are several types of charitable trusts, each with their own advantages and limitations. On top of the ability to provide for a cause you cherish, charitable trusts offer your and your heirs tax advantages you might not otherwise enjoy.

Charitable trusts are irrevocable, so it is always important to consult with an estate planning professional to make sure that you truly understand the nuances of in your charitable trust options. Once you set up a charitable trust, you cannot dismantle it.

With some careful planning, you can make the most of a charitable trust to create your legacy and maximize your benefits.

Three distinct tax advantages

When you choose to place assets in a charitable trust, the tax code allows you deduct the value of the gift from your income over the five subsequent tax years. However, it is important to understand the way that your trust is set up to pay you any interest. You are not allowed to merely deduct the full value of the gift, but rather the value of the gift minus the projected value of any interest payments you receive.

Despite the fact that you can receive payments from a charitable trust using the value of the underlying assets, you can safely use charitable trusts to remove certain assets from your personal estate. When you pass away, assets held within a charitable trust do not count toward your overall personal net worth, and will not trigger probate.

Finally, charitable trusts allow you to sell an asset that increased in value while you owned it without paying capital gains taxes. This process is a bit complicated, but effective.

If you own a piece of land over a period of time and it increases in value from $100,000 to $400,000 you may incur capital gains taxes if you sell it outright. However, if you place the property in a charitable trust, the charity named as the recipient can sell the property without incurring these penalties and invest the proceeds and pay you the interest without triggering capital gains.

Whatever your charitable ambitions may be, with proper guidance, you can use a charitable trust to achieve your goals and create a legacy that lasts for generations.