Charitable Trusts with Terry Igo, CEO of Tampa Bay Trust Company & TDP Board Member

Helping TDP While Saving Taxes: Charitable Trusts.

Financially successful individuals often look for ways to fund charitable interests, in a tax efficient manner. Charitable trusts can be an effective tool in meeting this objective. Several variations of a charitable trust exist and each serves a specific purpose.

Charitable Remainder Trust: 

When a Charitable Remainder Trust (CRT) is established, a gift of cash or property is made to an irrevocable trust. The donor retains an income stream from the trust for a specified number of years or for life. At the end of the term, the qualified charity specified in the trust document receives the remaining assets in the trust. The grantor of the trust receives an income tax deduction for the present value of the remainder interest that will ultimately pass to the charity.

A CRT is often used when an individual has a highly appreciated asset which is being sold. The CRT is an excellent method for deferring or possibly avoiding the capital gains tax on the sale.

There are two types of CRT – a Charitable Remainder Annuity Trust and a Charitable Remainder Unitrust. With the annuity trust, the annual annuity payment remains the same over the life of the trust and with the unitrust the annuity payment changes each year based on the value of the trust’s assets each year, at the predetermined payout percentage.

Charitable Lead Trust:

A Charitable Lead Trust (CLT) is established when an individual transfers cash or property to an irrevocable trust. A charity then receives an annuity payment for a number of years. At the end of the term the assets in the trust are transferred to the non-charity remainder beneficiary; typically, a child or grandchild.

The donor receives a charitable income tax deduction in the year the trust is created. The deduction is based upon the present value of the annuity payments the charity is to receive. For gift and estate taxes purposes the value of the gift to the trust’s remainder beneficiary(ies) is discounted by the present value of the annuity payments to the charities. 

There are two types of CLT’s; Charitable Lead Annuity Trust and a Charitable Lead Unitrust. With the annuity trust, the payment to the charity remains constant over the life the trust. With a unitrust, the annuity payment is calculated each year based on the value of the trust assets and the payout percentage.

CLT’s can be established during one’s lifetime or through their will. In the right circumstances, they can be an excellent way to avoid gift or estate taxes. Charitable trusts can be an excellent vehicle for charitable giving in a tax efficient manner. Before executing a charitable trust, one should consult with their tax advisor and estate attorney.

For more information regarding charitable trusts, please contact TDP Board Member Terry Igo at 239-229-5386.

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