Many California residents want to use their estate plan to give back to the community. As more people become interested in charitable giving, the benefits of creating a charitable trust become all the more critical. Creating a charitable trust allows you to give back to a charity or non-profit organization you support and provide you with a few benefits. Charitable trusts are beneficial for the wealthy and anyone with an asset that has greatly appreciated in value.
Creating a charitable trust requires careful planning. Attorney Christopher Heritage of Heritage Legal, PC, has helped many Palm Springs area residents set up a charitable trust so they can pass down their values to the next generation. He will carefully review your financial situation and your goals to create a comprehensive estate plan that includes charitable giving. If you’re interested in creating a charitable trust, contact Heritage legal, PC today to schedule your initial consultation.
What Is a California Charitable Trust?
Charitable trusts are irrevocable trusts that cannot be modified. There are many different types of charitable trusts that are legally valid in California. However, all charitable trusts serve the same purpose of allowing the creator to benefit a charity or charities. By setting up a charitable trust, the creator can continue to receive income from the trust during his or her lifetime while benefiting from an income tax deduction for the charitable gift. After the trust creator’s death, his or her estate will benefit from an estate tax deduction for the final gift to charity.
Married couples also benefit from creating a charitable trust. They can set up their trust so that the surviving spouse will continue receiving payments from the trust when one spouse dies. When both spouses ultimately pass away, the trust’s remaining assets will go to the couples’ preferred charity or charities. We will discuss some of the most popular types of charitable trusts below.
Charitable Remainder Trust
When an individual owns an asset that has dramatically increased in value since he or she purchased it, a charitable remainder trust can be beneficial. A charitable remainder trust is an effective tool for people who would like to receive an income from the trust throughout their lifetime. After creating the trust, the trust creator will receive payments from the trust assets’ interest. After the creator passes away, the remaining trust assets transfer to the charity or charities.
With a charitable remainder trust, the creator benefits from having financial security with monthly payments while giving back to a worthy charity. Suppose someone purchased an empty lot for investment purposes in Palm Springs 30 years ago for $100,000. The land is now valued at around $450,000. Should the individual sell the property, he or she will need to pay significant capital gains taxes on the profit. Ultimately, the seller would give up 20% of the profit. By creating a charitable trust, the seller can avoid paying capital gains taxes.
The owner could give the lot to his or her favorite non-profit charity. Charities do not have to pay capital gains tax in California. The charity could sell the lot at its current fair market value of $450,000. The charity could invest the entire proceeds and continue to make money from the investment for years to come. The original landowner would receive a fixed dollar amount every year from the charity that is a minimum of 5% of the trust assets’ value.
As long as the principal amount yields at least 5% each year, the charity should still have $450,000 in the trust upon the owner’s death. Upon the landowner’s death, he will have made an important gift to charity and also created a guaranteed income for himself for the rest of his life. His estate will also enjoy a substantial tax deduction when the charity receives the trust’s remaining assets.
Charitable Lead Trust
In some cases, an individual doesn't need a guaranteed income but would like to benefit from a non-profit while leaving something for their children or grandchildren. Creating a charitable lead trust can be a valid option in this scenario. Charitable lead trusts are similar to a charitable remainder trust, except the nonprofit will begin to receive the interest from the investment immediately.
The charity will continue to receive a regular income from the trust during the creator's lifetime. When the trust creator passes away, the principal assets in the trust will go to the beneficiary of his or her choice. As with a charitable remainder trust, the estate will receive a significant tax deduction for the value of the trust’s income. For example, a person could choose to give her favorite charity the interest generated by the assets. Upon her death, the remaining assets in the trust would transfer to her designated beneficiary.
Pooled Income Trusts
Pooled-income trusts are similar to mutual funds. The creator of the trust chooses a charity to receive contributions from multiple donors. The donations are pooled to form one large pooled income trust. The charity will invest the assets and pay interest to the donors based on their donations. The donors benefit from donating appreciated assets, and the charity can use the interest generated by the assets. While these trusts are typically less difficult and expensive to create, they do not provide as much flexibility to the creator.
Contact A Palm Springs Charitable Trust Lawyer Today
If you’re interested in creating a charitable trust, it’s essential that you speak with an experienced estate planning lawyer. Attorney Christopher Heritage is an award-winning estate planning lawyer with an in-depth understanding of California trust laws. He will review your goals and financial situation and help you create a charitable trust that will benefit you and your beneficiaries. Contact Heritage Legal, PC, today to schedule your initial consultation. |