Estate Planning as a Career

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When we think of Charitable Trusts, we think of very wealthy people. It is traditional that charitable trust have been set up by the rich (or their lawyers) to endow favourite charities and to help them reduce the taxes they must pay.

There are large tax incentives when you set up a charitable trust. You will receive an income tax deduction, or reduce your estate taxes. You can even eliminate capital gains tax. And you can do all of this while receiving a return on your donation. That’s right, you can donate money, save taxes and still get money back.

There are three major types of charitable trusts. The Charitable Remainder Trust (CRT), is a vehicle were you can donate money, property, stocks or bonds to a charity. The charity invests the money and you receive a return on you money, each year, for life or the length of the term. At the end of the term of after your death, all of the donation goes to the charity.

The Charitable Lead Trust (CLT) is just the reverse of the CRT. In this instance, you donate the property to the charity, the charity invests the money and it receives the income from the investment, until your death or the end of the term, at which time the donated property is returned to you or your heirs.

The third type of trust is called a pooled trust. This trust is set up by the charity itself and is designed for people with lesser incomes. A person with $5000-$10,000 to donate can participate, along with others who have pooled their money with yours. The same procedure takes place as with a CRT. The charity invests the money and pays you a return on investment until your death when it becomes the property of the charity.

The pooled trust has the same advantages as the other two trusts. You will receive a tax deduction for part of your donation (part depends on your age and part on the performance of the investment), or a capital gains exemption.

Assume that you purchased some stock 20 years ago and it has tripled in value, but is paying you very little. You would like to sell it and invest it in something that will give you a decent return on your money. However, if you sell it outright you will owe the IRS a large capital gains tax. If you donate it to a charitable trust, the trust can sell it, they do not pay capital gains tax, therefore the charity benefits and more money is invested that can be paid back to you.

Many pooled trust allow you to add to your initial donation over time, making it an excellent addition to your retirement plan.

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This entry was posted on Tuesday, October 2nd, 2007 at 1:25 pm and is filed under , Estates, Wills, Trusts, Career Information, Blog Carnival. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.