A charitable trust provides a beneficial alternative to merely leaving a donation at your death.
If you are not using a charitable trust, it could be because you either have never heard of them or misunderstand them.
Let me shed some light on this specialty trust so your decision against deploying it as part of your estate planning strategy is not for either of the reasons given above.
To help me explain, I will reference a recent Kiplinger article titled "Are You Losing Big Tax Savings on Your Charitable Bequests?"
First, why are you wanting to leave your donations under your will or trust?
If yes, then worry not.
You can see the benefits of your donation and receive an income tax deduction by using a charitable remainder trust.
Why utilize a charitable remainder trust specifically?
First, the income from the trust is yours to keep and use.
Second, whatever principal is left after you have died will pass to the designated charities.
Finally, you can select one of two variations to the trust. Each has its unique benefits.
Charitable Remainder Annuity Trust (CRAT)
With a CRAT income is defined as a fixed percentage of the initial contribution to the trust.
This is a good option if you would like to know the exact amount of income each year.
One thing to note regarding the Charitable Remainder Annuity Trust is the possibility of depleting assets within the trust if the return is not large enough.
The result is comparable to taking your typical withdrawals without adding funds to the trust.
Charitable Remainder Unitrust (CRUT)
With a CRUT, income is calculated as the set percentage of the value of the trust measured on the final day of the previous year.
If you want your income to be calculated from the accrued value of the assets within the trust when these assets surpass the payment amount, then you should opt for a CRUT.
Because income with a CRUT is calculated from the value of the account each year, you would never drain the trust. Your income from the trust could become quite small, however, with consistent under performance.
Whichever version you choose, you will still receive an income tax reduction for creating one of these trusts. If your income is too low to use the deduction in a given year, then the deduction can be divided over six years.
You retain control of the investment of the trust money.
Setting up a trust properly is not a DIY project. Enlist the services of an experiences estate planning attorney and experience the joy of cheerful giving.
So, how do you find an "experienced" estate planning attorney?
First, ask around. Friends, family and other professional advisors are trustworthy sources.
Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").
Third, either way, verify. Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.
In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Kiplinger's (June 2016) "Are You Losing Big Tax Savings on Your Charitable Bequests?"