What Are the Tax Advantages of a Charitable Trust?

What Are the Tax Advantages of a Charitable Trust?

Many people who have enjoyed some financial success in their lives want the opportunity to give back to charities and organizations. For those who wish to donate generous amounts to charity, it may be worth creating a charitable trust.

A charitable trust essentially requires that you give up legal control of your property, which is usually a sum of money. The way it works is that you set up a trust, often with the help of an attorney, and then transfer to this trust the money you wish to donate to charity. Your charitable trust would need to be approved by the IRS, which will deem it tax-exempt as a charitable trust. It is important to note that charitable trusts are non-revocable. Once one is established, a person cannot regain control over the property.

There are, however, tax advantages to setting up a charitable trust. For starters, people who have given a portion of their money to a charitable trust may take an income tax deduction over five years for the entire value of the charitable gift. The IRS deducts any income you are likely to receive from the property from the charitable gift.

There are also estate tax benefits to a charitable trust, which accrue after a person has died or the payment period of the charitable trust has ended. The property passes to the charity outright and is no longer a part of the original estate. Therefore, it is not subject to federal estate tax requirements.

Finally, you may realize capital gains tax relief when a charitable trust sells any appreciated property to your financial benefit. For instance, you could fund a trust with stock that you bought for $10,000, but is now worth $100,000. If the charitable trust sells that stock, you could receive income from the sale and would not have to pay capital gains tax on the $90,000 profit as you would if you had sold the stock outright.

If you are interested in creating this type of trust, contact a Florida estate planning lawyer with BaumannKangas Estate Law.