With taxpayers owing such a high percentage of taxes on almost any type of long-term gain, in addition to other taxes –such as the Medicare surtax – those in the top tax brackets might consider establishing charitable remainder trusts for donations of highly-appreciated assets. A charitable trust is a trust established for some charitable purpose. Charitable trusts are limited in what they can do; they must fit into a certain category established by the law.
In order to establish a charitable trust, you must first create the trust and donate the property to the trust that will eventually pass to a charity that is approved by the IRS. The trustee will manage or invest the property to produce an income. A charitable trust can pay the person who established the trust a certain percentage of the income that was made from the trust over an agreed upon payment timeline. After the person that established the trust passes away, the charity becomes the owner of the property.
Why establish a charitable trust?
An income tax deduction may be available for the value of the property given to the charitable trust. The IRS will consider the value of the property and the amount of income you may receive from the trust in determining your deduction.
In addition to receiving tax benefits, remember that you are also doing something beneficial for an organization that works to put a little extra good in the world. Current laws make charitable trusts irrevocable. Hence, while you may be able to obtain a cash flow from the property for the remainder of your life, the property cannot be sold later or given to an heir. The administration and management costs associated with charitable trusts should be carefully considered.
Charitable trusts are a great way to give back to your community, and gain a benefit for you as well. If you have any questions regarding charitable trusts, or any other estate planning questions, reach out to an experienced Illinois attorney today.