Charitable giving is easier than you think in an estate plan

Money Matters

Many reading this column are involved in our community: giving of time, talents and often money. That said, yet too few realize that giving in a different way may qualify for a nice tax break.

What if you still need income from your investments? Then maybe a charitable remainder trust (CRT) could be the right tool for you. These allow a donation of appreciated assets while generating current income. If you have highly appreciated assets (such as long-held stock or real estate), and are concerned about capital gains, gift and estate taxes, you may consider a CRT. These can provide an income stream and potentially sizeable charitable income tax deduction while benefiting your favorite nonprofit, eliminating capital gains taxes on assets placed in the CRT.

CRTs are irrevocable, tax-exempt trusts in which you place assets to provide income for you during a specific period of time (e.g., your lifetime or a term not to exceed 20 years). At the end of that period, the remaining assets will be turned over to the charities of your choice.

It is important to note that by establishing a CRT, you are giving up your rights to the assets placed in the trust and your heirs will not inherit any assets placed in your CRT. Some donors offset their gift by purchasing life insurance for heirs, which is often tax-free.

There are different options for setting up a charitable contribution through your estate plan. The easiest is a simple bequest through your will. Charitable contributions are 100 percent deductible from estate taxes.

A CRT must be designed in the form of an annuity trust or a unitrust. The primary difference involves income and fair market value of the assets in trust.

Income from an annuity trust is a fixed percentage (not less than 5 percent or more than 50 percent) of the initial fair market value of the assets. This is best used with assets able to generate the required income and offer less fluctuation (often bonds). Income is fixed and will not grow as the asset base grows, so the downside is that income may not keep up with inflation.

A unitrust is more flexible, but riskier. Here a donor still receives a fixed percentage (not less than 5 percent or more than 50 percent) of the value of assets in the trust (valued annually). The donor receives a fixed percentage of the current fair market value. This may mean income grows, but there is no guarantee of growth. A unitrust allows for additional contributions, whereas the annuity trust does not. Ultimately, the choice between an annuity trust and a unitrust will be dictated by a number of factors best determined by your advisory team.

You might consider other gifting options: a Charitable Lead Trust (a CRT in reverse) or private foundation. Many IRA holders are designating a charity as a beneficiary or using required minimum distributions (RMDs) for their charitable donation. Each option should be considered in consultation with your advisory team to see which is best for your situation.

Kindness pays—so see if your generosity may offer tax advantages.

About Jayne Di Vincenzo 10 Articles
Jayne Di Vincenzo, AIF®, CEP®, has more than 20 years of experience as a financial advisor and wealth consultant. She holds her registrations and licenses including the 24 General Securities Principal, 53 Municipal Principal, Series 7, 63, 65, 31 with Cambridge Investment Research, Inc. Jayne owns Family CFO Services and Fiduciary EDGE Advisors LLC. Reach Jayne at 757-236-5505 or

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