Benefits of Creating a Charitable Trust

Charitable trusts enable a person to donate generously to charity while receiving several tax advantages. There are different types of charitable trusts, but the most common one is called a charitable remainder trust.

To establish a charitable trust, a person transfers the property he or she would like to donate into the trust through a legal document. Under Florida law, a charitable organization is one designated tax exempt by the Internal Revenue Service (IRS). The charity serves as trustee of the trust and manages or invests the property to produce income. The charity pays you, or a person you have named as a beneficiary, a portion of the income generated by the trust property for a certain period of time that you establish in the trust document.

Income from the trust can be received in two ways, either as fixed dollar amount (annuity) each year, or as a percentage of the current worth of the trust property. Either at your death or at the end of the designated time period, the property goes to the charity.

Potential tax benefits come from an income tax deduction — spread over five years — for the value of a gift to the charity. However, the value of this gift is not the full value of the property since the IRS deducts from that value the amount of income you are likely to receive from the property. This can help you avoid capital gains tax on appreciated property. Further, when the trust eventually goes to the charity, it is no longer part of your estate and it is not subject to federal estate tax.

Information provided is of a general nature and does not act as a substitute for a personal discussion with an estate planning attorney. Your circumstances may create different legal opportunities.