One of the most popular options for estate planning in Illinois is a charitable trust, where an individual donates and transfers valuable assets to a charity to “hold” until the owner’s passing. You still “own” your property as an appointed trustee, or you can appoint someone else to do it.
Charitable trusts are one option for asset and wealth preservation that can reduce the taxable amount in your estate and support the charity of your choice. Transferring options into an Illinois charitable trust also reduces both income and capital gains taxes, as well as gives you a tax deduction. This makes a charitable trust transfer a much better option than selling outright.
Once the ownership transfers to the charity, they are free to sell. But when they sell it, the charity pays no capital gains taxes, and they are free to re-invest the funds into other income-producing assets. Trust income, however, is taxed in the year it’s received, and can be paid to you for the rest of your life. Note that if a charity pays an income to a couple, the income can continue as long as either party is alive.
What Are Suitable Assets For A Charitable Trust?
The best assets to add a charitable trust in your estate plan are those that have a good appreciated value since you bought them. Un-mortgaged real estate, publicly traded securities, and stocks from some closely held corporations, (except for S-Corp), and of course, cash.
Transferring into a charitable trust can also ensure that you receive an income from the asset until you die. Afterwards, the remaining trust assets are distributed to the charity beneficiaries that are named in the trust.
Other Benefits Of A Charitable Trust
Once gifted and transferred into the irrevocable trust, your asset is protected from creditors. If you kept your asset, creditors could have access to it.
The recent tax code overhaul has made a charitable trust even more attractive. A smaller number of taxpayers are eligible for itemizing tax deductions, including charitable donations. It also eliminates the provision that limits the amount for those in higher income brackets. You’ll have a charitable donation deduction when you make a large donation to a charity.
And of course, your favorite charities are remembered in your estate and will benefit from your donation, which helps them continue to do the work.
Choosing A Trustee
For as long as you live, your trustee has control of the asset, not the charity, and they must follow your instructions. If the trustee doesn’t, you can replace them. You can also change the charity if you want, without losing the tax advantages.
You can appoint yourself as the trustee, or select another individual, such as a spouse or other relative. Just make sure that your trustee understands how to handle investments, since you’ll be depending on them to provide you with an income once your asset is transferred out.
The State of Illinois offers information online about choosing suitable charities, and ensuring that they are legitimate.
Consider Hiring A Chicago Estate Planning Attorney
If you’re considering a charitable trust to preserve assets and save on estate taxes, it’s important to work with a Chicago estate planning attorney who understands them. James C. Provenza is an Illinois estate planning attorney with more than 20 years’ experience. Provenza Law works with clients to ensure that their estate planning is done right, and that their wishes are carried out. Call our Illinois law firm today at (847) 729-3939, or use our online contact form.
