All about investment

By Rita Lambros-Segur

A charitable trust is designed to create a path whereby your assets may be converted into a life long stream of income and not a source of governmental revenue though taxes. Your taxes are lowered, what you pay now is lessened and what your heirs or your children pay will be lessened too when the time comes to pay estate taxes.

In recent years a charitable trust setup has become far more popular because they provide a valuable advantage to us in terms of what we pay currently and those taxes we will pay in future years. They permit us to provide for those causes or people who are important to us. These trusts are irrevocable and will not generate capital gains and estate taxes immediately.

The establishment of a charitable trust will halt the capital gains paid on immediate sales of your assets, lower your estate taxes sometimes as much as 50% of what your children or other heirs might have to pay after your death. Further advantages are that it will reduce what you currently pay for income taxes and this, in turn, will increase your income throughout the remainder of your life. It will additionally make a very positive future gift for your charity and increases those assets that your heirs receive after your death.

How does a charitable trust work?

Here is what happens. You transfer all cash, bonds, securities, and property that you own into the charitable trust. This is an irrevocable transfer. In other words, you can't do it today and change your mind tomorrow. The value of your estate is substantially lower than it was prior to now and as such so are the taxes as well as the estate taxes to those whom you designate as heirs. Based on what you want to do with the money when you are gone, you pick a kind of charitable trust to build. At the end of the trust, all assets are given to a charity that you will select. Some trusts permit you to choose more than one charity while others do not permit that.

Charitable trusts take some very skillful drafting to make them completely legitimate but they are most assuredly worth your time to look into. Some legal specifications apply, of course, to what end you can and cannot do. There are excise taxes which are given for acts of what is termed self dealing, meaning any type of transaction between the charitable trust and an individual who is termed a disqualified person such as a family member or the family of a contributor.

Others might be a loan between the charitable trust and the person who established that same trust. Such transactions, however, might cause a penalty in the form of an excise tax to both the recipient and the charitable trust.