Michigan Estate Planning Blog

Should I have a Charitable Trust in My Estate Plan?

 

Charitable trusts can be created to provide a reliable income stream to you and your beneficiaries for a set period of time, says Bankrate’s recent article entitled “What is a charitable trust?”
Establishing a charitable trust can be a critical component of your estate plan and a rewarding way to make an impact for a cause you care deeply about. There are a few kinds of charitable trusts to consider based on your situation and what you may be looking to accomplish.
Charitable lead trust. This is an irrevocable trust that is created to distribute an income stream to a designated charity or nonprofit organization for a set number of years. It can be established with a gift of cash or securities made to the trust. Depending on the structure, the donor can benefit from a stream of income during the life of the trust, deductions for gift and estate taxes, as well as current year income tax deductions when the assets are donated to the trust.
If the charitable lead trust is funded with a donation of cash, the donor can claim a deduction of up to 60% of their adjusted gross income (AGI), and any unused deductions can generally be carried over into subsequent tax years. The deduction limit for appreciated securities or other assets is limited to no more than 30% of AGI in the year of the donation.
At the expiration of the charitable lead trust, the assets that remain in the trust revert back to the donor, their heirs, or designated beneficiaries—not the charity.
Charitable remainder trust. This trust is different from a charitable lead trust. It’s an irrevocable trust that’s funded with cash or securities. A CRT gives the donor or other beneficiaries an income stream with the remaining assets in the trust reverting to the charity upon death or the expiration of the trust period. There are two types of CRTs:
A charitable remainder annuity trust or CRAT distributes a fixed amount as an annuity each year, and there are no additional contributions can be made to a CRAT.
A charitable remainder unitrust or CRUT distributes a fixed percentage of the value of the trust, which is recalculated every year. Additional contributions can be made to a CRUT.
Here are the steps when using a CRT:
Make a partially tax-deductible donation of cash, stocks, ETFs, mutual funds or non-publicly traded assets, such as real estate, to the trust. The amount of the tax deduction is a function of the type of CRT, the term of the trust, the projected annual payments (usually stated as a percentage) and the IRS interest rates that determine the projected growth in the asset that’s in effect at the time.
Receive an income stream for you or your beneficiaries based on how the trust is created. The minimum percentage is 5% based on current IRS rules. Payments can be made monthly, quarterly or annually.
After a designated time or after the death of the last remaining income beneficiary, the remaining assets in the CRT revert to the designated charity or charities.
There are a number of benefits of a charitable trust that make them attractive for estate planning and other purposes. It’s a tax-efficient way to donate to the charities or nonprofit organizations of your choosing. The charitable trust provides benefits to the charity and the donor. The trust also provides upfront income tax benefits to the donor, when the contribution to the trust is made.
Donating highly appreciated assets, such as stocks, ETFs, and mutual funds, to the charitable trust can help avoid paying capital gains taxes that would be due if these assets were sold outright. Donations to a charitable trust can also help to reduce the value of your estate and reduce estate taxes on larger estates.
However, charitable trusts do have some disadvantages. First, they’re irrevocable, so you can’t undo the trust if your situation changes, and you were to need the money or assets donated to the trust. When you establish and fund the trust, the money’s no longer under your control and the trust can’t be revoked.
A charitable trust may be a good option if you have a desire to create a legacy with some of your assets. Talk with an experienced estate planning attorney about your specific situation.
Reference: Bankrate (Dec. 14, 2021) “What is a charitable trust?”

Art – In the Eye of the Beholder?

Art is gauged by two entirely different and often mutually-exclusive vantage points. There is the subjective eye of the beholder that gauges beauty, and then there is the no less subjective eye of the market, the appraiser and/or the taxman. In planning for your estate, your heirs can adopt the eye of the beholder but it is necessary for you to see through the eyes of the taxman. Be sure to properly plan for your artworks and ensure that they are appropriately (if usefully) valued, as seen through the eyes of the taxman. The issue of valuation is always the issue at stake when it comes to taxes – be it with regard to real property, stocks, or something as mercurial as an easement – but with art there is both a special importance and a special irony. After all, art is only truly valuable when it is priceless, in one sense, but there is nothing that is priceless on the market. For perspective on the issues and even some practical advice there is much to be gleaned from a recent article in Mondaq titled “Valuing Artwork For Federal Taxation Purposes: Income, Estate & Gift Tax Issues.” As anyone with a sizeable art collection will quickly understand, the value placed on a piece of art is, in the first instance, entirely based on the market’s whim and, in the second instance, every valuation is both a blessing and a curse. A high valuation leads to high prices for sale and, just as important, a high deduction when donated to charity. A low valuation, on the other hand, can make a piece of art cut that much less against estate and/or gift taxes. It is really hard to say which value you will want and when. That is a dynamic the IRS is well attuned to, so when it comes to finally pegging a value it is vital to have a reasonable valuation of the “fair market value.” Admittedly, it is a tricky topic and after reading the original article you will agree that it is a good idea to review your own collection and plans. So, what about your art collection? Will it pass the taxman’s tests or will it be a flaw in the estate plan?

Reference: Mondaq (June 3, 2014) “Valuing Artwork For Federal Taxation Purposes: Income, Estate & Gift Tax Issues”

10 Steps To Giving On Purpose Mid-Michigan

Can your philanthropy do more than just help the cause or causes important to you? Yes, as many well-to-do but generous Americans can attest. If you are philanthropically inclined and have an appreciation “for things that matter most,” then why not bless your family as well as your charities as part of your legacy. To make philanthropy a part of your legacy, you do not have to be a Carnegie to have your name put on this or that building. For most of us, our family is our most important and lasting legacy. Consequently, philanthropy can be what binds a family together and passes down real enduring values to the younger generations, all while doing tangible good today. This is not automatic. It requires more than estate planning, or even charitable gift planning, but what is called legacy planning. To give you a quick run-down and even a guide, you might consider the ten steps that formed the basis of a recent Private Wealth magazine article titled “10-Step Legacy Planning.” The ten by title alone are: 1. Identify What Inspires 2. Create A Giving Mission Statement 3. Review Giving History 4. Engage The Next Generation 5. Research Non-Profit Organizations 6. Form A [Family] Focused Team 7. Decide Where To Give 8. Build The Strategy 9. Present Customized Recommendations 10. Implement The Strategy Be sure to read the original article for the details on these ten steps. In the meantime, there is no time like the present to get started on the first step. So, what “inspires” you?

Reference: Private Wealth (January 7, 2014) “10-Step Legacy Planning

For more information, see www.jerryreiflawyer.com

 

Savvy Givers Give Strategically

It’s hard to comment on the recent outpouring of information about presidential hopeful Mitt Romney and his tax records. First, since he is a potential presidential candidate, there are political ramifications, as he is a wealthy individual there are ideological (if not also political) ramifications, and as he is a Mormon who practices tithing there are theological ramifications. That said, and whatever your opinions on the man are, it’s hard to deny that he is a very real life example of some serious charitable giving at work. As reported by BusinessWeek (and a thousand other places besides), the Romneys gave about $7 Million dollars to charitable causes over the past two years. Interestingly, their giving wasn’t just a matter of simply writing a check (although, granted, a great deal of it was by cash donation). No, the Romneys make use of their own charitable organization. If you, too, are a serious donor, then this may be a worthwhile strategy to consider. As an individual giving to charity you are somewhat limited, especially when it comes to the tax year and claiming deductions. By using a charitable organization as a conduit you can give during a given tax year, take the deduction from your personal taxes, and then, as a leader in the charitable organization, still work to grow that gift and take the time to make it do the most good. Likewise, you can lead others and implore them to your causes. (Think Bill and Melinda Gates Foundation.) Of course, starting a foundation and maintaining it are often difficult tasks, even though they don’t have to work on such a grand scale as the famous examples. As far as tax advantages, a similar benefit can still be wrought from a form of pooled charity trust, set up by a charity or investment company and able to grant you a tax deduction on your gift in the current year while waiting to pool resources and do the most good. Still both approaches are elaborate ways of practicing your charitable giving and either may just be the right method for you. Be sure to consult with appropriate legal and tax counsel to determine the appropriate method for your objectives.

Reference: BusinessWeek (January 24, 2012) “Romney Tax Returns Show $7 Million in Donations Over 2 Years