Charitable Estate Planning

Cameron Hamilton

Estate planning can achieve many goals, from simple to complex.  The foundations of good estate plans we have discussed thus far in our Atheneum articles make sure that a family has formalized their personal wishes to make for a graceful transition to the next generation.  Many families wish not only to provide for their next generation of heirs, but also the causes they hold dear in their communities.  Today we will discuss some options for charitable planning that can help achieve this goal.

Charitable estate planning can range from simple annual gifting to complex strategies that involve tax and trust planning which play out over decades.  With such a wide scope, it is important to have a firm grasp on your goals for charitable planning.  We find a great strategy is to explore these alongside your other financial planning goals, and then partner with an estate planning attorney who can choose the right structure to balance your charitable intent with the other needs and desires of your family.  Let’s explore two charitable planning options we’re seeing estate planners implement today.

Charitable Remainder Trust – Families can transfer property to a charitable remainder trust and receive income generated by those assets during their lives, leaving the remainder to the charitable beneficiary.  This deferred charitable strategy works well for appreciated assets such as low-basis stock.  Transferring low-basis assets to a trust with a charitable beneficiary lets the owner avoid capital gains tax that would be incurred upon a sale.  The owner also receives an income tax deduction based on the discounted value of the transferred property the charity will receive.

An advanced use of this strategy involves pairing with a Wealth Replacement Trust.  This option is available if family would like to make an eventual gift of property to a charity but also restore the estate for eventual family beneficiary.  They can use the income generated by the Charitable Remainder Trust and cash saved with the income tax deduction to purchase life insurance to benefit the family beneficiary.  In this scenario, the life insurance proceeds pass estate-tax free to “replace” the assets transferred to the charitable trust.

 Charitable Lead Trust – If a family would rather provide an immediate benefit to their charity, a charitable lead trust can be a good option.  With a CLT, the charity leads by receiving trust income during the donor’s lifetime, with the eventual remainder passing to the family or other beneficiary at death or other predetermined date.  This is a great option for families that make annual gifts to charitable organizations.  The trust can be structured to achieve current charitable contribution deductions or to transfer assets to family heirs with minimal gift tax consequence.

 These two strategies are among many great tools for families that want to benefit their favorite charities during and after their lives.  We are always excited to learn of our clients’ passions and help facilitate the process of translating those passions into an estate plan.  If you feel it would be beneficial to explore a charitable component in your estate plan or have a conversation with a trusted estate planning attorney, please do not hesitate to call our office.

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