Many individuals and families use charitable trusts to leave all or a portion of their estate to charity when they die, both for philanthropic purposes and for certain tax benefits. They represent excellent estate and gift tax planning opportunities, especially for estates that include appreciated assets and/or have a favored charity or private foundation.

Charitable remainder trusts are irrevocable “split interest” trusts established by a donor to provide an income stream to an income beneficiary, while the charity receives the remainder value when the trust terminates. Charitable lead trusts make payments, either of a fixed amount (charitable lead annuity trust) or a percentage of trust principal (charitable lead unitrust), to a charity during its term. At the end of the trust term, the remainder can either go back to the donor or to heirs named by the donor. 

There are many benefits to charitable trusts, four of which are as follows:

1. Shelter long-term capital gain on highly appreciated assets.
2. Grantor income tax deduction equal to the actuarial value of the interest going to the charity.
3. Estate tax planning – when the trust property eventually goes to the charity outright, it is outside of the grantor’s estate and not subject to federal estate tax.
4. Subject to certain limitations, using a charitable lead trust may entitle a grantor to a gift tax deduction during his/her lifetime based on the interest going to the charity.

If you are interested in enhanced estate and gift tax planning, please contact Fournier Legal Services at jfournier@jeflegal.com or 860.670.3535 now for a free consultation and planning session to discuss your options and the possibility of utilizing charitable trusts as part of your plan.