A charitable trust can be an effective part of your estate plan if you set it up and use it correctly. At a certain level of wealth, high-wealth individuals should set up a system to manage their assets and reduce their tax liability. This is usually what a charitable trust is used for in estate plans. The key is making sure that it works for your specific situation before you take steps to set one up. Here is what you need to know to determine if using charitable trusts in your estate plan is a good idea.
What is a Charitable Trust?
Similar to other types of trusts, a charitable trust is set up to manage the assets of an organization. In this case, that organization is a charity, and all assets owned by the trust must be used to support charitable operations.
It shares many similarities with other trusts. For example, all of the assets owned by the trust are completely separate from any individual. They are owned and governed by the trust, meaning they continue to be a part of the trust once the donor is no longer around.
However, there are several limitations placed on charitable trusts that should be considered before setting one up and donating assets to it. The most prominent of which is that the assets donated to the charitable trust cannot be returned to the donor. Charitable trusts are also irrevocable, meaning you cannot simply dissolve them whenever you decide the time is right. That means that you had better be sure that creating the charitable trust is the right choice
What are the Benefits of a Charitable Trust?
Aside from creating a charity to support a cause that you believe in, setting up a charitable trust can be a good way to help protect and manage your estate. If you have assets that you want to be protected but are not sure you can do so, creating trust can be an easy solution. Many estate owners do this to protect important historical properties and assets that they want to ensure are protected long past the end of their lives.
Another reason why you may want to create a charitable trust is for tax benefits. Donating to charity can help high-wealth individuals reduce their tax burden. The amount that you donate is related to the size of the tax credit that you can take, which lowers your overall tax liability for the year.
Tax liability is the main reason why you would want to create a charitable trust. You can donate to the trust to lower your tax liability and it is a charity for a cause that you care about. It’s a win-win situation if you use it correctly.
Discuss Charitable Trusts With an Estate Planner First
Before you create a charitable trust for the potential benefits, discuss it with your estate planner first. Working with trusts to manage your estate is always something to discuss with an estate planning attorney before taking action so that you are sure that you’ll get the benefits that you are looking for. Contact James C. Provenza & Associates, P.C. at (847) 729-3939 or fill out our online form to schedule an appointment to discuss how a charitable trust can work for your estate.
