Everyone has their own reason for gifting their assets or a portion of their income to charitable organizations. Some find comfort in helping others who are less fortunate, while others simply want to share their good fortune. Many of the institutions of art, sciences and education are supported in large part by those who want to give something back in appreciation for their contributions to the community or the individuals themselves.
Presently, the tax code offers incentives for gifting of one’s assets or incomes. Tax deductions are given for current contributions and, for estate owners, charitable gifts can reduce the size of the estate to help minimize estate taxes.
Charitable Remainder Trust
A remainder trust enables the donor to transfer an asset while retaining the right to the income it generates. The asset becomes the “remainder” which is owned by the charity. Remainder trusts, if properly structured, can qualify for a current tax deduction. There are three types of remainder trusts:
Unitrust: A unitrust the income the donor receives is based on a percentage of the current fair market valuation of a trust asset. Each year, as the asset is valued, the income is adjusted based on the new valuation.
Annuity Trust: Instead of a percentage of the asset value, the donor is paid a fixed amount annually.
Charitable Lead Trust
Also known as an Income Trust this vehicle transfers the income rights to the charitable organization. Generally, the income rights are assigned for a specified period of time after which the remainder passes to the donor.
Charitable planning involves tax issues that should be discussed with a qualified tax or financial professional.
For more information of charitable planning, please contact us today.