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When we think about the legacy we’ll leave behind one day, it often involves providing for our loved ones after we’re gone. But what if you also want to make a lasting impact through charitable works, leaving a positive imprint on the world?

This is where charitable trusts come into play. These special financial tools provide you with a unique way to benefit the causes you care about most, all while preserving your assets and potentially reducing taxes. It’s a win-win situation – you make a difference, and your estate benefits too.

What Is a Charitable Trust?

A charitable trust is an estate planning strategy where you place assets into a trust, and these assets are then managed to benefit both your charitable causes and, if structured correctly, your financial well-being.

Types of Charitable Trusts

There are two main types of charitable trusts:

  1. Charitable Remainder Trust (CRT)

This trust pays an income to you or your chosen beneficiaries, and after a set period or upon death, the remaining assets go to your chosen charitable organization.

A CRT can provide income for you or other beneficiaries for life or up to 20 years. Once the last beneficiary passes away or the designated income period ends, the remaining trust assets are donated to charity.

There are two primary types of charitable remainder trusts.

  • Charitable Remainder Unitrust (CRUT): Payments to the beneficiary are determined as a percentage of the donated assets. The payment amount is recalculated annually based on the trust’s principal value.
  • Charitable Remainder Annuity Trust (CRAT): The beneficiary receives a fixed annual payment, no matter what the trust’s principal value may be.

Under current tax laws, those who establish charitable remainder trusts can benefit in several ways:

  • Tax Deduction: Settlors may receive a tax deduction in the year the trust is created.
  • Capital Gains Tax Avoidance: Capital gains taxes can be avoided under certain circumstances. For instance, property that would typically incur capital gains taxes upon sale can instead be used to fund a charitable remainder trust. The beneficiary receives income from the property throughout the trust’s duration without facing capital gains taxes.
  • Estate Tax Relief: Since charitable remainder trusts are irrevocable, the assets are no longer considered part of the settlor’s estate, potentially offering estate tax relief.
  • Creditor Protection: Trust assets may receive protection from most creditor claims because the settlor no longer controls them. 
  1. Charitable Lead Trust (CLT)

In this trust, the charity receives the income for a specified time, after which the assets go to your heirs or beneficiaries. This trust provides instant income tax advantages and can also prove advantageous for beneficiaries who are not affiliated with charities in the future.

Benefits of Charitable Trusts

  1. Leaving a Legacy: Charitable trusts allow you to make a lasting impact on the causes you’re passionate about. You can support a charity that aligns with your values and beliefs.
  2. Tax Advantages: When structured properly, charitable trusts can offer tax deductions, reducing your tax liability and preserving more of your wealth for your chosen causes.
  3. Asset Protection: Charitable trusts can also help protect your assets from various financial risks, offering peace of mind to you and your family.
  4. Income for Life: With charitable remainder trusts, you or your beneficiaries receive an income for life, even while supporting charitable organizations.

Thinking of Setting up a Charitable Trust in California?

If you’re considering creating a charitable trust, it’s essential to work with experienced professionals who can guide you through the process. At Hermance Law, we specialize in trusts and estate planning and can help you set up a charitable trust that aligns with your goals and values.

Let us help you create a meaningful legacy. Reach out to us today, and together, we can design a charitable trust that makes a lasting difference.

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