There are important details to consider when planning your charitable giving. Your main goal is to give back to the communities, causes and organizations in which you strongly believe. But without consulting an attorney and tax professional, your giving could be less effective than it would be otherwise.
At McCoy Fatula, APC, in Roseville, California, we provide legal guidance to clients throughout the Sacramento area and across the U.S. Our team is comprised of active community supporters who work to give back in creative and effective ways. Our team works to help you do the same by helping to reduce your income, capital gains and estate taxes through comprehensive estate planning. We can help you maximize your abilities to sustain charitable funding efforts throughout your life and beyond.
What Charitable Giving Options Do You Have?
Charitable trusts are irrevocable, which means that they are irreversible once established, so it is important to enter and complete this process with the guidance of legal and financial professionals.
In basic terms, there are two types of charitable trusts:
- Charitable remainder trust — You are able to transfer cash, securities and property to an IRS-approved charity of your choice. And, the charity uses its tax-exempt status to sell assets, invest them and manage them (serving as the trustee) without being subject to capital gains tax.
- The charity then pays you or another named beneficiary a portion of the income from the trust funds, lasting for a number of years or until your death, depending on your documents.
- Annual payments to you or your beneficiary can be made through a fixed annuity or by percentage of the current value of the trust.
- Upon your death, the donated property will be transferred completely to the charity.
- Once the trust is established, you will be able to spread over five years an income tax deduction equal to the original value of assets you donated minus what you expect to receive in interest payments over the life of the trust.
- Charitable lead trust — You place cash, securities or property in a trust with your chosen charity, and the charity receives payments from the trust each year for a defined number of years or until your death.
- When the time period expires, or you die, your named beneficiaries receive the remaining assets of the trust without incurring federal gift or estate tax.
- This is set up as an annuity trust, and you set the percentage the charity will receive as a payment each year based on the initial value of the assets in the trust.
Advantages Of Charitable Trusts
In each type of charitable trust, you are able to claim a charitable income tax deduction, exclude the property donated from your estate (which reduces your estate tax) and turn property into cash without paying tax on profits gained. This is a win-win situation for your chosen charity, your beneficiaries and yourself if the plan is properly set up with the help of a financially savvy attorney.