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Using a Charitable Lead or Remainder Trust in Your Estate Planning

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Using a Charitable Lead or Remainder Trust in Your Estate Planning

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Perhaps once in a person’s life they may have a large windfall and have concern about the many facets of decisions that come with such a blessing.

For those whose hearts are moved to give there is good news in the form of charitable trusts, which that can provide substantial tax deductions while at the same time provide a gift to the Church.

There are two types of charitable trusts that may help: Charitable Remainder Trust (CRT) and Charitable Lead Trust (CLT). Both trusts can provide a sizable current tax deduction that can be used over a five-year period.

These two trusts are similar in several ways. In both cases two parties are involved: the donor and the charity. The donor will place their money or assets into one of these irrevocable trusts types. Contributions to fund the trust can include: cash, stocks, or real estate. Both charitable trusts will have investments that are earning income that will be distributed as a payment.

The big difference between the two types of charitable trusts is who will receive the income from the trust and what happens to the trust investments at the end of the trust term.

A Charitable Remainder Trust (CRT) uses the trust income to provide taxable payments from the income to the donor. These income payments last the life of the trust. When the CRT terminates it will gift the charity the remainder of trust assets or investments as a future gift.

The strategy of the CRT is for the donor to transfer their highly appreciated property or assets prior to any windfall or sale into the tax-exempt CRT they establish. After the transfer into the CRT, the trustee (donor) sells the property, now owned by the CRT, with no long-term tax liability.

The money that would have gone to pay taxes now remains in the trust, to be invested to produce income for the donor. After the income years have ended the remainder of the unused trust account becomes a gift for charity. A CRT must be established before any such windfall or transaction because there must be a clear and timely intent to make a gift. Early planning is critical.

In contrast, Charitable Lead Trust (CLT) uses the trust income to provide an annual gift to the charity for the term of the trust.

When the trust terminates, the balance of the unused trust goes back to the donor or their family. The CLT is good to use when the donor wants to see and appreciate their gift being used while they are still living, and have the satisfaction of knowing their gift will keep giving after their death while still allowing their family to have an inheritance.

  Charitable Remainder Trust (CRT) Charitable Lead Trust (CLT)
Income payments go to Donor Charity
End of Trust Term— account balance goes to Charity Donor
Tax deduction now Yes Yes
Trust Term 20 to life 14- or 20-year
Pre-planning Required Before or after

 

For both of these trust types, one needs to consult with a qualified tax advisor or lawyer to get them established.

For additional information or assistance please contact our planned giving coordinator Howard Marchbanks by emailing plannedgiving@ucg.org, or by phone at (513) 570-2343.

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