Realize tax deductions while taking care of your heirs and Texas charities
Establishing a trust is complex, and to ensure your gift is properly administered you should establish a charitable trust with the assistance of your legal and financial advisors. There are two types of charitable trusts: charitable remainder trusts and charitable lead trusts.
Charitable Remainder Trust
By gifting assets to establish a Charitable Remainder Trust, you receive an immediate tax deduction and lifetime income for you or your named beneficiary/ies. You also reduce or avoid capital gains taxes associated with the gifted asset. Eventually, when the trust's term is complete, the remaining assets pass on to Communities Foundation of Texas (CFT).
There are two types of charitable remainder trusts:
CHARITABLE REMAINDER UNITRUST
The beneficiary of a charitable remainder unitrust receives an amount each year determined by multiplying a fixed percentage by the fair market value of the invested assets of the trust which are valued annually. Upon the beneficiary’s death, or a term of years not to exceed 20 years, payments terminate and the unitrust assets go to a fund at CFT or named nonprofit organization. Payments, therefore, fluctuate with the market and may provide a hedge against inflation.
CHARITABLE REMAINDER ANNUITY TRUST
The beneficiary of the trust receives a fixed dollar amount annually. Upon the death of the beneficiary or a term of years not to exceed 20 years, payments end and the annuity trust assets are transferred to a fund at CFT.
Charitable Lead Trust
A charitable lead trust has a different order of events than the charitable remainder trust. Payments are made to CFT and your fund for a charitable lead trust term measured by a remaining lifetime of an individual or a predetermined number of years (there is no 20-year limit as with charitable remainder trusts), with either a reversion to the original donor or other named individuals.
There are two types of charitable lead trusts:
Charitable lead unitrusts pay CFT an amount determined by multiplying a percentage (set at the outset) by the net fair market value of the trust assets valued annually. Then the trust principal goes to the non-charitable remainder persons (or in rare cases reverts to the donor).
During periods of low interest rates, the annuity payment option is attractive for donors as more assets may be passed on to heirs with reduced or eliminated gift or estate tax costs.
Charitable lead annuity trusts pay CFT a fixed dollar amount set at the outset for the term of the trust. Afterward, the principal goes to the non-charitable remainder persons (or in rare cases reverts to the donor).
Geri Jacobs, ChFC, CLU
Director of Charitable Gift Planning
Contact me to explore creating a charitable trust.