Supporting charity organizations is its own reward, knowing that you are using your wealth to help causes close to your heart. However, there is no reason why you cannot help others while still enjoying some benefits for yourself. One effective way to support charities and receive tax benefits is by creating a charitable trust.
What Is a Charitable Trust?
Charitable trusts are tax-efficient ways to reduce tax liability from investments while donating to non-profit organizations. A donor can contribute assets to a charitable trust which will be paid to the designated charities upon the donor’s death. The benefit to the donor is that they can still receive income from the investments, but they greatly reduce their tax liability, especially on capital gains. There are multiple types of charitable trusts, including charitable remainder annuity trusts (CRATs) or charitable remainder unitrusts (CRUTs).
Benefits of a CRAT
Charitable remainder annuity trusts (CRATs) are created with specific goals in mind. Assets are gifted to the trust and they are designated to private foundations or public charities after the donor’s death. This type of charitable trust is autonomous in its legal structure. A specific amount of assets is contributed when it is conceived, and no more contributions can be made. There is a set percentage of annuity distribution between 5-50% that goes to a noncharitable beneficiary, often the donor. This income is taxable, but the donor still benefits by avoiding capital gains taxes.
CRATs offer protection against liability since it is a separate trust fund, which makes it different from other types of charitable trusts. Once created, the legal structure will remain the same until the assets are donated to the designated entities. This is either after the death of the donor or it can occur any time after 20 years, if desired by the donor.
Charitable trusts can be a win-win situation for those that want to avoid excessive capital gains taxes on selling assets while helping charities that are important to them. To learn more about charitable trusts like CRATs, contact us at Turner Law in Decatur, GA.
Posted on the behalf of Turner Law, LLC