The Benefits of Charitable Giving
Michael F. Kanzer & Associates, a leading Brooklyn law firm, is knowledgeable about all aspects of estate tax planning. We understand the most efficient ways to prevent the government from heavily taxing your assets when you pass away. One of the best ways to take advantage of estate tax exemptions is charitable giving.
Not only a great way to explore your philanthropic desires, charitable gifting is a smart solution for your estate planning strategy. In order to protect your beneficiaries from paying extreme estate taxes when you pass, you should making arrangements to minimize the amount of taxable assets during your lifetime. There are many charitable giving options available, and most are exempt from estate taxes. The most common is a charitable remainder trust (CRT).
What is CRT?
Charitable remainder trusts are tax-exempt trust funds. Individuals may place assets into this trust to provide income for a lifetime or a period of 20 years or less. The trust may be funded with a variety of assets, such as real estate, stocks, mutual funds or bonds. After the designated period of time, the remaining funds are donated to the charity of your choice. This trust can prevent beneficiaries from losing money due to excessive taxes. CTRs not only generate income throughout their lifetime, but they also provide income tax benefits.
Annuity Trust vs. Unitrust
There are two types of CTRs: annuity trusts and unitrusts.
The income generated from an annuity trust is set at a fixed percentage of the fair market value of the assets within the fund. Most Brooklyn lawyers will advise individuals to use annuity trusts with assets that do not fluctuate in value. Because the annuity trust is fixed, the payout will remain at the same percentage and it will not grow regardless of inflation rates.
While the unitrust option is more flexible, it tends to be a riskier option. These trusts are valued annually, and the donor receives a fixed percentage that is representative of the current market value. Unitrusts allow for growth, however, that growth is highly dependent on the market. Therefore, increased payouts are not guaranteed.
Alternative Charitable Giving Options
For donors that might want to consider other options besides CTRs, there are a couple of different gifting strategies.
- Charitable Lead Trusts – This type of trust is a bit different from a CTR. It allows donors to place certain assets in the trust and designate a period of time that a fixed percent of the assets will be paid to a charity. At first, the donor must pay a gift tax to set up the trust. After that, the remaining assets will not be taxed.
- Foundations – Setting up a foundation is another option. This allows donors to set up gifting schedules based around an area of importance. For instance, some foundations fund research grants or educational scholarships.
Our Brooklyn law firm understands the importance of setting up a strategy to manage your estate once you have passed on. Contact Michael F. Kanzer & Associates today to discuss your options for charitable giving, estate litigation, and our other estate planning services.