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Many of you wish to leave a lasting legacy behind for your family and your community once you pass away. Charitable giving is one of the best ways to leave a lasting impact!
You can provide funds to multiple charitable causes in several ways. A popular approach is by using a donor-advised fund (DAF). A DAF allows you to get a charitable deduction today and then make contributions to charities over time. This can be an effective tool if you are not sure which charitable purposes you want to support yet but you want the deduction now. DAFs are very appealing because of how efficient they are. You can donate one time and invest those earnings so they can grow tax-free — it’s that simple!
Another avenue donors like to take is a charitable trust. This is an excellent option for those concerned about the federal estate tax (which is set to change in 2025). You can implement two kinds of trusts: Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs). Here’s what you need to know.
A CRT is an irrevocable trust that pays you or your designated beneficiaries an income over a period of time, with the remainder of the assets going to a charity or nonprofit organization of your choice. The income you receive from a CRT can either be a fixed amount or a percentage recalculated annually. Like DAFs, there are tax advantages you can receive by implementing a CRT. If you contribute stocks or highly appreciated assets to a CRT and your trust sells them, the sale won’t trigger an immediate capital gains tax. It is important to note that the income stream that the CRT provides is taxable, but this is hopefully offset by the charitable deduction you receive for the initial contribution of assets to the CRT and elimination of capital gains on the appreciated asset. Additionally, the CRT is outside your estate, you could get more potential tax savings.
The other charitable trust you can consider is a CLT. This trust is the opposite of a CRT — rather than providing an income stream to you or a beneficiary the income stream is directed to a charity. After a period of years the remainder of principal in the charitable trust is distributed to beneficiaries of your choosing. This can be a very effective tool when trying to mitigate estate taxes.
Because of the various avenues you can take, it’s best to connect with a seasoned attorney to help you discover which option is best for you. If you want to create a charitable trust to keep your legacy alive, please contact us today to get started!