Charitable Giving
Everyone has personal reasons for giving—whether it’s a desire to support those in need, a wish to share one’s good fortune, or a commitment to giving back to institutions that have enriched their lives and communities. From the arts and sciences to education and healthcare, many essential organizations rely on the generosity of donors to continue their work.
Today’s tax code offers several incentives for charitable contributions. Current gifts may be tax-deductible, and for those with sizable estates, charitable giving can reduce estate taxes by decreasing the value of the taxable estate.
In many cases, individuals choose to designate charitable beneficiaries in their wills, ensuring their legacy continues after their lifetime. However, there are also strategies that allow donors to support causes they care about while still benefiting from the income an asset provides.
Understanding how to structure charitable gifts can be key to maximizing the benefit to both the donor and the charitable organization.
Charitable Remainder Trusts (CRTs)
A Charitable Remainder Trust allows donors to transfer assets to a trust while retaining the right to receive income from those assets. After a specified period—or upon the donor’s passing—the remaining assets go to the designated charity. When properly structured, CRTs can also provide a current tax deduction.
Types of Charitable Remainder Trusts:
- Unitrust – The donor receives a fixed percentage of the trust’s annually revalued assets. As the value of the trust changes, so does the income.
- Annuity Trust – Provides the donor with a fixed annual payment, regardless of asset performance or value changes.
- Pooled Income Fund – Donated assets from multiple donors are combined in a fund managed by the charitable organization. Donors receive a proportional share of the income generated by the fund throughout their lifetime. Payments vary based on the fund’s investment performance.
Charitable Lead Trusts (CLTs)
Also known as Income Trusts, these vehicles operate in reverse of CRTs: income generated by the trust is paid to the charitable organization for a set period. Once that period ends, the remaining assets typically return to the donor or pass to designated beneficiaries.
Work with a Professional
Charitable planning involves complex tax and legal considerations. It’s essential to consult with a qualified financial or tax professional to ensure your strategy aligns with your goals and current regulations.
Herrmann Financial Group and LPL Financial do not provide legal or tax advice. Please consult your legal or tax advisor regarding your specific situation.
For more information on charitable planning strategies, please contact us today.
