Planning for the future can be easier to tackle when there are instruments available to help us and guide us through the process. There are a number of estate planning tools at your disposal. Wills are often utilized a main platform to transfer assets upon death, and trusts can play an integral part, too. In fact, there are so many different kinds of trusts that you are almost certain to find one that meets your needs. This week, we will look at the charitable trust.
A charitable trust, as its name implies, is established for the benefit of a charity. In short, you decide that you want to give property to charity, so you put those assets in a trust. Those assets can be used by the charity, and it will pay back a certain portion of those assets each year. Upon your death, the property transfers to the charity.
Why would you do this instead of outright giving the property to a charity? There are a couple of reasons. First, by setting up a charitable trust, you allow yourself to be paid based on income derived from the trust assets. For example, if the charity, which would serve as the trustee and thereby manages the trust, decides to convert the trust assets into a mutual fund, then you may receive payments each year from the trust. These payments may either be a certain percentage of the trust's assets or a fixed dollar amount.
Another reason to consider a charitable trust is because it can provide significant tax benefits. Assets donated to a charitable trust can be tax deductible, although it is important to note that any money paid out of the trust to the individual who created the trust is reduced from the deductible amount. Additionally, in instances where stocks are placed in a trust, you can avoid paying capital gains taxes even if the charity decides to sell it, as the charity is tax exempt. Placing assets in a charitable trust can also reduce the value of an estate, which could reduce estate taxes.
Charitable trusts can be molded to fit your wishes. They can be extremely rewarding, not only giving a cause you support a helping hand but also allowing you to maintain a steady and predictable stream of income from those assets. It can also provide your family with some financial stability, therefore making it a potentially strong piece of your estate plan.