Charitable Giving and Estate Planning

Many estate planning clients make charitable gifts. Sometimes the motivation is for protection of their pets (the Stevenson Center, Texas A & M University), support of their church or favorite causes, to teach their children the value of giving back (donor advised funds are used for this many times) or for the benefit of others. In addition to a client’s charitable intentions there are other reasons to add charitable gifts to an estate plan. Charitable gifts can offset income and estate tax liabilities and do not necessarily require that a client or his or her family give up the ownership of an asset permanently. We can use many of the various types of charitable trusts to accomplish these goals. Most of these charitable trusts can be established as inter vivos (during your lifetime) trusts or as a part of your Will or trust at your death, known as testamentary trusts.

Charitable Remainder Trusts

Charitable remainder trusts (CRTs) are created to provide an income stream to the client or the client’s family while donating the asset to charity when the term or income is no longer needed. CRTs can be used to increase incomes for spouses and children, save taxes and benefit charities. And now, with recent changes in the tax laws, they are even more attractive. A CRT lets a client convert a highly appreciated asset (stock, real estate, etc.) into lifetime income without paying capital gains tax when the asset is sold. It reduces income taxes now and reduces estate taxes when at death. And it helps a charity that has special meaning to the client.

What is the process?

An appreciated asset is transferred into an irrevocable trust. This removes it from the estate so when the client dies, no estate taxes will be do on it. The trustee then sells the asset at full market value, paying no capital gains tax, and re-invests the proceeds in income producing assets. For the rest of the client or the client’s beneficiary’s life, the trust pays an income. When the client dies, the remaining assets go to the charity(ies) chosen. That’s why it’s called a charitable remainder trust.

Charitable Lead Trust

A Charitable Lead Trust works like this: Like a CRT, CLTs offer income tax deductions and a reduction of capital gains taxes. The only difference is the CLT pays the income to the charity and the asset ultimately comes back to the family. Charities are the income beneficiaries, receiving a steady stream of income during the owner's lifetime. At the owner's death, named beneficiaries then receive the bulk of the CLT's assets. Charitable Lead Trusts also receive the preferential tax treatment.

Family and Private Foundations

Private Foundations, Family Foundations and Supporting Organizations are additional options we offer our high net worth clients.