Charitable trusts create benefits for you, your beneficiaries and a charity.
There are two primary types of charitable trusts: charitable lead trusts and charitable remainder trusts. These trusts serve different needs but the one thing they have in common is that a charity will be a beneficiary.
These trusts are tailored to meet the specific needs of the donors based upon your philanthropic goals and your family’s specific circumstances.
Charitable lead trust
Initially distributes a portion of its assets to a charity and then the remainder of the principal is distributed to your beneficiaries. This can be a powerful philanthropic estate tax planning vehicle.
- A Charitable Lead Trust (CLT) may be structured with either an annuity or unitrust payout; there is no minimum or maximum payout requirement
- A CLT structured as a unitrust can be used to leverage the generation-skipping transfer tax exemption
- A CLT may be structured as a grantor or non-grantor trust for income tax purposes:
- A grantor CLT permits the donor to take an income tax deduction for the actuarial value of the charitable lead interest, but the donor will be taxed on the income for the term of the CLT. Recapture rules also apply if the CLT ceases to be a grantor trust
- A non-grantor CLT is taxed as a complex trust; the charitable distribution is deductible annually from trust income
- A CLT permits the transfer of appreciation in excess of the IRS benchmark rate to a family, free of estate and generation-skipping transfer tax
- CLTs are particularly attractive in a low interest rate environment
Charitable remainder trust
The initial beneficiary (you or whoever your name) will receive an annual income, either for a number of years or for life, and upon the termination of the trust your chosen charity receives the remainder of the assets.
Forms of CRT
- Charitable remainder annuity trust (CRAT)
- Charitable remainder unitrust (CRUT)
- Income only, or with makeup unitrust (NICRUT or NIMCRUT)
- Payout must be a minimum of 5% and a maximum of 50% of initial value (CRAT) or annual fair market value (CRUT)
- At the end of the term, the remaining assets are distributed to one or more charities, which may include a family foundation
- 10% remainder requirement
- A CRT may be created by a will or during lifetime
- The value of the remainder interest is not subject to estate or gift tax
- If the CRT is established during the grantor’s lifetime, an income tax deduction is also available for the value of the remainder interest
- A CRT is particularly useful if the grantor’s goal is to derive an income stream from highly appreciated assets for the client or other beneficiaries
- When a CRT sells appreciated assets, the capital gains tax is deferred until treated as paid to an income beneficiary
- Income from the CRT is taxed to the income beneficiaries under a tier system that taxes the distribution first as ordinary income, second as capital gains, third as other income, and last as corpus
The Foundation for Jewish Philanthropies would be honored to assist you and your family in preserving your legacy.
Irving H. Levy, Executive Director
(716) 204-1139 • 716-390-9653 • Irv@jewishphilanthropies.org
The Foundation for Jewish Philanthropies does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. The Foundation makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.