Title: “Your Last Will And Testament: Securing And Storing”


Source: The Prosperity Law Blog Part 1 | Part 2
Word Count: 754 (part 1), 819 (part 2)
Notes: This is a 2-part blog on request of the client, merged together into this one project.

"charitable trust"When my current clients and future clients come to me, not a lot of them know there’s a way to truly provide for people. In building out a solid estate plan, it’s my job to consult with clients and ensure all their needs are met for their family. Generally, the primary focus is their loved ones. As human beings, many of us have a desire to help other people as well. You, yourself, may not know there’s a way to help others at the same time … until now. It’s sort of a ‘kill-two-birds-with-one-stone’ mentality, but for the good. In this first of two blog series, I’ll be covering charitable trusts from a high-level perspective.

An Overview On Charitable Trusts

The two birds from the metaphor above are first, your philanthropic goals and charity and second, estate planning. Charitable trusts are divided into two separate types—a charitable remainder trust (CRT) and a charitable lead trust (CLT). Both types split your assets between charitable giving (charity) and non-charitable beneficiaries (family members). Determining how to best structure your estate and giving will dictate which trust will best benefit you. One important note to keep in mind if you feel a charitable trust is right for you is the permanent capacity in which these exist. To put it in common terms, charitable trusts are irrevocable, meaning they cannot be changed, altered, or reversed, except in very limited circumstances.

The main difference between a charitable remainder trust (CRT) and a charitable lead trust (CLT) is how and when both beneficiaries receive assets and distributions. As with other trusts, these two types of trusts give you control over the timing of the distributions. The major factors to concern yourself with are what assets you have to donate and which of these assets to hold in trust. Consider these basic, but important questions:

  • What are your wealth preservation goals?
  • Which charities are on your list and how will they receive your assets?
  • Who do you want to receive which assets and when?

Charitable Remainder Trusts

A CRT is mostly used for assets which are highly appreciated or non-incoming producing. In this way, they provide somewhat of a payout to either you or the charity/charities tied to the
trust. You choose the time period, which can be for you or someone else’s lifetime or up to a 20- year maximum term. When the term ends, any remaining assets are distributed to the charity/ charities. Through the creation of a CRT, individual beneficiaries will receive the income’s interest. The charities are the parties to receive the remainder. Additionally, a CRT should be considered if you have holdings in real estate and stocks.

Charitable Lead Trusts

A CLT is almost identical to a CRT. However, a CLT makes the payout to the charity first. After a set time period, the trust terminates while the remaining assets and income go to your non- charitable beneficiary. With a CLT, interest from the income is distributed for a set number of years (a maximum term of 20 years). The option to receive income can also last for a person’s lifetime. In this way, all remaining assets will be distributed once the trust is dissolved.

Donor-Advised Funds

While not an official trust, there is a secret option number three to be used with a CLT or CRT. This is known as a donor-advised fund (DAF). The purpose of a DAF is two-fold. First, a donor- advised fund can extend to benefit several charities and second, to offer flexibility for possible distribution changes down the road. This is important to consider because of the irrevocable nature of charitable trusts.

With a donor-advised fund, you can advise (hence the name) how assets are invested, when they are invested and the amount those multiple charities in question will receive. Without a DAF, your assets remain with the potential to grow. “While a donor-advised fund cannot provide a stream of income to a non-charitable beneficiary,” says Deborah Segal, a director at Fidelity Charitable®, “setting one up in conjunction with a split-interest trust can enable you to take advantage of the key benefits of the trust and the donor-advised fund.” — Source: Fidelity

Next week, I’ll be discussing the tax benefits of both charitable remainder trusts (CRT) and charitable lead trusts (CLT). Stay tuned and know that I’m open to discussing both CRTs and CLTs with you for your loved ones and charities in the future.

"charitable trust"Last week, I blogged about charitable trusts and donor-advised funds from a high-level. As promised, this week, I will be diving deeper into the benefits, focusing specifically on the tax benefits of implementing either a charitable remainder trust (CRT) or a charitable lead trust (CLT). As a general guideline, assets tied to your estate, once used to fund a charitable trust, move out of your estate. Keep these topics and questions in mind as we move forward:

  • What are your wealth preservation goals?
  • Which charities are on your list and how will they receive your assets?
  • Who do you want to receive which assets and when?
  • Do you want to create an income stream?
  • Do you want or need the ability to change your charitable beneficiary?

Major Tax Benefits Of Charitable Remainder Trust (CRT)

As I mentioned in last week’s blog, a CRT is the route to go if you have holdings in real estate and stocks. You’ll be able to sell those assets within the trust and avoid paying capital gains taxes. In this way, the trust receives the full fair market value of the assets, meaning there is more to donate to both the charity and your non-charitable beneficiaries.

CRTs are tax-exempt therefore, it’s a great reason to establish a CRT is when you own property and desire to donate heavily to charity. The property can be used as “funds” for a CRT, in which it can produce income in its non-income-producing capacity. In this instance, the CRT owns the property and sells the property. The sale preserves the charitable remainder, which generates income to you as the donor.

Because income is part of a CRT, you have potential for income tax deduction to make use of— based on the value of the donation to charity. Be sure to ask your professional tax advisor or CPA for the best way to proceed. If you would like a recommendation on tax professionals in Massachusetts, shoot me an email!

Major Tax Benefits Of Charitable Lead Trust (CLT)

An income tax deduction is also available if you decide to form a charitable lead trust. “A CLT established during a donor’s lifetime may be designed so that the donor benefits from an up-front charitable income tax deduction in the year it is funded.”Source: Fidelity

Funding your charitable trust with assets from your estate rids you of the pain of estate taxes. This is a big plus because upon your death, your estate will owe fewer taxes. Additionally, that money saved can be dispersed to your beneficiaries. “If a contribution to a CLT occurs upon the death of the donor, that donor will be eligible for an estate tax deduction for the value of the interest paid to the charity.”

More good news regarding taxes keeps coming in the form of a reduction of gift taxes. Gift taxes come into play when donating a gift (monetary or otherwise) to someone outside of a trust. However, there is a possible penalty for the beneficiary if he or she is not the donor—they may be subject to tax on the interest of the gift. More specifically, these types of CLTs are known as “non-grantor CLTs.” If you’re interested in establishing a CLT and/or giving gifts outside of a trust, we can discuss your options offline. Feel free to reach out to me via email (see below) or by phone: 978-462-0100.

Donor-Advised Funds (DAF)

Donor-advised funds are returning as a strategic addition to either your charitable remainder trust or charitable lead trust. It can easily complement and benefit either type of trust. To put it simply, a DAF adds flexibility, not complete power, to amend certain parts of an irrevocable trust such as a CRT or CLT.

A DAF would work best when placed in between a trust and a charity. Think of it as a middleman. This allows flexibility with deferring a distribution or direct charitable donation. It also allows other charities to be considered and incorporated into the trust.

The CRT Life Insurance Strategy

This is one heck of a smart way to utilize the maximum benefits that some people may not see with all these tools fragmented. Once they come together like puzzle pieces, you’ll learn a CRT can fund a life insurance policy. Here’s how: a donor could establish a CRT for the usual purpose of charitable giving and using the income stream to pay for the insurance premiums. Again, I come back to killing two birds with one stone. You can duplicate protection for your family and charity with one tool, the CRT. The remainder of assets will be donated to the charity while the life insurance policy covers you and is passed to your beneficiaries upon your death. In this instance, usually, the life insurance policy is owned by a separate life insurance trust.

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