Investing in the Future with Charitable Giving Through Trusts

Charitable giving has long been a cornerstone of philanthropy, allowing individuals to make a positive impact on causes they hold dear. As society becomes increasingly aware of social and environmental issues, there’s a growing desire to give back and make a difference. While many people choose to contribute to charities directly, some are exploring innovative and strategic ways to enhance the financial effectiveness of their philanthropic endeavors. One approach is charitable giving through trusts.

Trusts offer a unique blend of financial planning, tax benefits and the ability to create a legacy. In this article, Andrea Thermos, CPA, explores the world of charitable giving through trusts, delving into the tax advantages, preservation of assets, irrevocability, income sources, and the flexibility they provide in managing investments and supporting charitable causes.

Tax Deductions: A Win-Win Proposition

Charitable giving through trusts has the potential for significant tax benefits. When a trust is established with charitable intentions, the donor is often eligible for an immediate income tax deduction. This deduction can reduce the donor’s taxable income, resulting in lower tax liabilities. It’s a win-win proposition; donors can support their favorite charities while simultaneously reducing their tax burden.

Preservation of Highly Appreciated Assets and Capital Gains Tax Avoidance

Some individuals have assets that have appreciated significantly over time, such as stocks, real estate, or art. Selling these assets can trigger substantial capital gains taxes. Charitable trusts offer an attractive solution to this dilemma. By transferring these appreciated assets to a charitable trust, donors can avoid paying capital gains tax. Furthermore, these assets can be managed and potentially generate income for both the donor and the chosen charitable organizations. It’s important to note that charitable trusts are typically irrevocable, meaning that once established, they cannot be altered or revoked by the donor. While this may initially seem restrictive, it ensures that the assets within the trust are dedicated to charitable purposes, providing a long-lasting impact.

A Source of Income During and After a Donor’s Lifetime

Charitable trusts come in various forms, and one common type is the charitable remainder trust. This trust allows donors or their heirs to receive income from the trust during their lifetimes or for a specified period. Afterward, the remaining assets in the trust are distributed to charitable organizations. This arrangement ensures financial security for the donor and their loved ones while still contributing to charitable causes in the long run. Additionally, charitable remainder trusts are tax-exempt, whether award during the donor’s lifetime, or when received after death.

Flexibility in Investments and Charities

Another appealing feature of charitable trusts is the flexibility they provide. Donors have the freedom to choose the investments within the trust, allowing them to potentially grow the assets over time. Furthermore, donors can select the specific charitable organizations or causes they wish to support, ensuring that their philanthropic efforts align with their values and passions.

Helping You Get There…

Embracing charitable giving through trusts empowers individuals to create a lasting impact on the causes they are passionate about, all while enjoying substantial tax benefits and preserving their assets. Whether you’re looking to reduce your tax liability, safeguard appreciated assets, or create a source of income for yourself and your heirs, charitable trusts provide a versatile and effective solution. An experienced estate and trust advisor can lead you through a plan that meets your individual needs. To learn more about how our advisors help you get there, contact us today.