Updated: Oct 7, 2021
There are many worthwhile charities that people like to donate their money to each year. This can be a passion project, something that you love to see supported such as with a charity, or a charitable group of agencies that are just getting started. You are supporting your community, and many worthwhile causes when you support the charity of your choice while you are living. Accordingly, there are as many charities that some people will choose to leave money to when they die. In those cases, your philanthropic legacy will be appreciated by the charity and continue to help others after your passing.
What Exactly Is a Charitable Trust?
A charitable trust is part of your overall Maryland estate plan, where you will want to set up a charitable trust as part of your estate. You are able to set this up during your lifetime, save money on income taxes, and depending on the charitable trust you choose, find that you can take advantage of many benefits that a charitable trust has to offer.
Charitable Lead Trust
The first type of charitable trust is a Charitable Lead Trust (CLT) and it allows beneficiaries to receive income interest for income generated by the trust, for some years of a person’s lifetime (usually the trust creator’s life is the measurement of this trust). When the creator of the trust dies, the assets left in the trust are directed to be given to noncharitable beneficiaries.
Charitable Remainder Trust
The second type of charitable trust is a Charitable Remainder Trust (CRT), and it works a little differently than a CLT. The CRT will pay an annuity to the trust creator (who is a non-charitable beneficiary) or another chosen non-charitable beneficiary for a certain number of years, or for the lifetime of the trust creator (or someone else listed). At the end of the specific number of years designated, then the remainder of this trust will be transferred on to a specific charitable organization, as per the wishes of the trust creator.
There Are Many Advantages of a Maryland Charitable Trust
Now for the advantages of a charitable trust. These trusts are favored at law and can offer income tax deductions for the amount of assets that are going to be passed on to a charity at the designated time in the trust documents. For example, with a CLT, you can set up this trust whereby the donor gets the charitable deduction when the trust is funded.
Another advantage is that there will be an estate tax reduction when the assets for the charitable trust are transferred out of the trust to the charity. This means that the values of the assets are excluded and safe from being part of the taxable estate.
How Does a Charitable Trust Preserve Assets of the Trust?
A charitable trust allows preserving the value of assets in the trust, and avoids capital gain taxes if it is sold early on without being in this type of trust. The trust itself can sell the assets easily, without the tax issues, keeping more money in the trust for beneficiaries and heirs. Charitable trusts are also in many cases able to create income for you during your lifetime. An asset can be sold from the trust without tax liabilities, and will offer income to you up until the trust asset is transferred on your death to the charitable organization of your choice. When you have questions on charitable trusts, schedule a consultation with our office, and let's talk.