How to Use A Charitable Trust to Give Back This Holiday Season

There are many ways to do good during the holiday season. For some, that involves donating to a charity. What if you want to donate in a bigger way, perhaps support a charity that means a great deal to you? A charitable trust could be one of the most effective ways to do that. At Smith Taire Legal, we can help you establish a Georgia charitable trust that allows you to give in a way that’s meaningful to you.

What Is a Charitable Trust?

A charitable trust is a way of creating a legal method of leaving some of your assets to a named charity. In doing so, you protect those assets from creditors and other claims, and you ensure that there is minimal risk of taxation, lowering what your desired charity receives. Charitable trusts are documented and explained in Internal Revenue Code section 4947(a)(1).

Setting up a charitable trust is a great way to give back this holiday season. It is always best to speak to your Georgia estate planning attorney to learn more about charitable trusts and how well they fit into your overall estate planning goals.

Types of Charitable Trusts

There are several types of charitable trusts available, each offering a different strategy for meeting your Georgia estate planning goals. There are two main types, Charitable remainder trusts and charitable lead trusts, and there are some differences between them.

All trusts must be chosen carefully to ensure they meet the IRS requirements to receive a charitable donation. Here is a look at several types of these trusts.

Charitable Remainder Trusts

This type of trust allows the charity to receive income for a period of time. Then, the remaining assets will move to the charity listed in the trust at some point later. One type of charitable remainder trust is called a Charitable Remainder Annuity Trust. This version pays a fixed annuity amount to the beneficiary on an annual basis. The second type is a Charitable Remainder Unitrust, which pays the beneficiary a fixed percentage of the trust's assets on an annual basis.

Charitable Lead Trusts

The second main type of charitable trust provides income to one or more charities for a given period of time. Then, the remaining assets are distributed. A Charitable Lead Annuity Trust, one version, pays a fixed annuity amount to the charity annually, whereas a Charitable Lead Unit Trust pays a fixed percentage of the assets each year.

Donor Advanced Funds

Another type of charitable trust is a donor advanced fund, which allows you to donate and then make grant recommendations to the charity over time.

Community Foundation

For a large-scale project, consider a community foundation charitable trust that will support various goals within a specific area.

Private Foundations

A private foundation is also a type of charitable trust that’s funded with a large donation and then has a Board of Directors that provides decision-making for the group.

How Does a Charitable Trust Work

As noted, there are a variety of types of charitable trusts, and each works in its own way to achieve a specific goal. However, the premise of how they work is rather simple.

The trust owns any of the assets you put into it. It is required to pay taxes and manage those assets like any other entity would be required to do so.

You can use the charitable trust to distribute assets to named charities following the rules you create for the process. Charitable trusts can be set up and used during your lifetime or after your death.

The Benefits of a Charitable Trust

There are many ways to create an estate plan that meets your goals. Georgia charitable trusts allow those who are philanthropic to have a way to give to meaningful organizations that meet IRS rules. There are various reasons why you may wish to consider using them as a part of your Georgia estate planning strategy.

Tax Deductions

Charitable trusts, depending on the type, allow you to see better tax benefits, often higher than what you may get from a standard income tax deduction. When set up properly, it helps to reduce your own estate taxes, and that means more of your money remains available.

Charities Don’t Pay Capital Gains Taxes

Another core benefit is that, as your assets grow in value, you do not have to worry about capital gains taxes since charities do not pay them. This means assets within the trust grow faster than if they were not in the trust.

Preserve Highly Appreciated Assets

When you contribute high-value assets to the trust, you preserve the value of those assets longer. That tends to be a better route to take than selling the assets and having to pay capital gains taxes now. However, from a tax perspective, you can continue to receive annual payments (depending on the actual structure of your trust).

Create an Income

As noted, you can use these to move assets to protect value, and depending on the type, they can create a steady income for you as the value of the asset rises over time. When you transfer ownership of your assets to the trust, this allows the trust to sell those assets without any tax liability, and then the funds go back to the trust. This creates a stream of income.

Keep in mind that working with a Georgia estate planning attorney is critical here. You need to be sure that you are choosing the best type of charitable trust for your particular needs, which will differ from one person to the next. However, for most individuals, the benefit, beyond the altruistic action, is that they can protect their assets.

Speak to Your Estate Planning Attorney with Any Additional Questions

If you need assistance creating or revising your will, trust or estate plan documents, Jammie Taire and the Smith Taire Legal team can help you. We educate our clients on their estate planning options and ensure their final wishes are legally binding. Call us at 678-253-8133 if you have questions about your estate planning or wish to meet with an experienced Georgia estate planning attorney.