Charitable trust is pertinent for those who are willing to give their property or asset to a charity and in return the charity guarantees that the heirs of the property owner would receive a large tax break. The work starts first on ensuring the trust within the charity by means of the charitable remainder trust. Before donating to the charity make sure that it’s recognized by the revenue system and has significant tax-exempt status. The assets or property which you want to give to the charity gets entrusted in a trust.
Then the charity acts as trustee and decides the ways to invest the property and assets kept in the trust. The charity will grant the beneficiary termed by you by granting the income made by investing the property and assets for a certain period which is until your life time or the stipulated time period given. At the end of the stipulated time period the property placed in the trust moves on to the charity.
Tax breaks offered by the Charity:
- Income tax: The one who donates can get an income tax deduction up to five years for the contribution made, interest rates based on norms present in the trust document
- Estate tax: If your estate is worthy to get subjected to federal estate tax at the time of your demise, then the property which is included in the trust does not become the part of taxable estate and whatever present in the trust will move on to the charity after you die.
- Capital gains tax: If you are to sell your property at a higher price than the time bought, then you need to pay capital gains tax for the property. As you have placed your property under a charitable trust, they become authorized to sell the property and is liable to pay the gain obtained, as capital gains tax are not applicable for any type of charity.
Receiving Income from Charitable trust:
- Fixed annual income: You can fix the net annual income from the charity. Once you fix the amount as irrevocable, the charity pays you every year the stipulated amount.
- Assets percentage: There is also another option instead of the fixed annuity; you can receive certain percentage of the asset’s worth in the trust annually. This is hugely helpful during economic crisis but beware if the asset’s value decreases then there is chance of gaining a lesser money than the previous year.
The need of an Attorney:
Estate planning can lead to a disaster if not planned properly because of the terminologies involved. Take help from Commercial Litigation Attorneys who are expertise in this field to sort out all the complexities and bring in a proper understanding about all the clauses before entrusting a decision.