• Retired Investor
  • The Advantages of Charitable Trusts

    by Christine S. Fahlund

    Do you have a significant college reunion that’s inspiring you to make a large gift? Perhaps there is a capital campaign for your favorite cause. These are the kinds of giving opportunities that should have you considering a charitable trust. For example, a charitable remainder trust allows you to make a major gift while still affording you the security of a reliable income stream—the ultimate win-win.

    In terms of tax benefits and structure, a charitable trust (in the form of either a remainder trust or a lead trust), differs from other types of giving, such as outright gifts or bequests and donor-advised funds.

    With a charitable remainder trust, you generally designate how you would like to receive income during your lifetime with the charities of your choice getting the “remainder” at your death. Your options are to take a fixed amount as an annuity (an annuity trust) or to take a percentage of the trust’s assets annually (a unitrust).

    You also get to choose the duration of the trust—maybe 10 years, or perhaps the duration of your lifetime and your spouse’s lifetime. These choices will affect the IRS’s determination of the “remainder interest” that the charity will be likely to receive, which dictates the charitable deduction you will receive when you fund your trust.

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    Christine S. Fahlund , Ph.D. and CFP, is a senior financial planner and vice president of T. Rowe Price Group, an investment management firm based in Baltimore, Maryland.


    James Merchant from MA posted over 3 years ago:

    I would like to see the ETF substitutes for the Mutual Funds that you use. I prefer using ETF's because they are easier to trade, and their fees tend to be less.

    Harold Helson from MA posted over 3 years ago:

    Interesting topic. Can the trusts be revocable should hard financial times ensue?

    Ken Milder from NM posted over 3 years ago:

    Harold raises a good question. While revocable trusts exists, the charitable tax advantages of these vehicles might make them irrevocable. I know that a portion (I believe 10% minimum) of a Charitable Remainder Unitrust must be irrevocable. The 10% minimum is based on the initial fair market value of the assets transferred into the trust.

    Charles Kaminski from WA posted over 3 years ago:

    Potential issue with respect to selling concentrated, highly appreciated positions in order to reposition. Trust may have to pay taxes which reduces corpus.

    Victor Bradford from CO posted over 3 years ago:

    --Thank you for your generosity in providing this article to us all.
    --We investigated this option and found the received interest rate from a charity compares very favorably with that for a conventional annuity.
    --Please discuss your plans with your charity's donor department. Ours gave several options, including a life insurance policy, annuities, and a simple gift. Our charity, for example, encouraged us to simply gift appreciated securities because they felt it involved less uncertainty and fees (and gave us a greater tax deduction). I might consider that option if you anticipate adequate pension income.
    --I would also encourage you to remember that future tax policy may be changed and today's charitable tax policy may be significantly more favorable (and is more certain) than future policies. A deduction in the hand today may be worth more than a fraction of that deduction in the future.

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