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Charitable Planning

There are significant estate planning opportunities in charitable giving, both during life and at death, for those who are charitably inclined. Charitable giving can be effectively used to save on both income taxes and estate taxes. It may also be used to help instill a sense of charitable purpose in your children and carry on family legacy (in particular see donor-advised funds below).

Charitable Remainder Trusts

One of the most popular and effective vehicles for charitable giving is the Charitable Remainder Trust (“CRT”). A CRT is an irrevocable trust that is established to provide income for life to the grantor(s), and pass to named charities at the death of the grantor(s). It can provide the grantor with annual income based on a percentage of the trust (called a “unitrust”) or based on an annual fixed amount (called an “annuity” trust). There are three significant and distinct tax benefits that can be achieved through a CRT:

  1. Avoid Capital Gains Taxes. The grantor can transfer already appreciated assets to the trust. Then, if and when the trustee sells such appreciated assets (e.g. Cisco stock), there will be no capital gains tax. Another advantage of the CRT is that it presents an opportunity to diversify where holdings are too concentrated in a few highly appreciated stocks that you have been hesitant to sell due to capital gains tax.
  2. Current Income Tax Deduction. The income tax deduction will be based on (i) the age of the grantor(s), (ii) the contribution to the trust, and (iii) the value of the grantor’s annual interest (either a percentage or annuity). The attractiveness of the deduction to you will be based on your marginal tax rate (e.g. 15 vs. 35%).
  3. Removal From Taxable Estate. The assets contributed to the Trust will be excluded from your estate upon death, and be transferred directly to the named charities. Many families wish to augment this reduction in the family’s bequest by replacing with an equivalent amount of life insurance (held by an irrevocable trust, of course). Clients often find that the life insurance premiums nearly pay for themselves after factoring in the reduction in capital gains, the income tax deduction, and the estate tax exclusion.

Donor Advised Funds

Donor advised funds have become an increasingly popular method of making charitable gifts both during life and after death. They work somewhat like your own little private foundation (but without much of the expense and regulations). You can set them up through many of the large brokerage institutions (Fidelity, Schwab, Merrill Lynch) or one of several charitable entities set up to handle these (The Giving Trust, Chicago Community Trust, National Philanthropic Trust). You make a qualified charitable gift to your account, either during your life or in your will/trust, and then you, or your handpicked advisors through your will/trust) can recommend gifts be made from time to time among charitable entities according to your desires. This is a great way to get children involved in charitable giving through making them advisors within your estate planning documents.

Other Charitable Options

There are numerous other options for the charitably inclined with various features and purposes. Some of these include:

  • Outright charitable gifts
  • Charitable gifts in living trusts or wills
  • Charitable lead trusts
  • Charitable foundations
  • Conservation easements

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The Law Offices of Jeffrey R. Gottlieb, LLC takes special pride in helping families achieve their charitable goals. Please call us at (847) 991-2250 if we can be of assistance in helping you achieve your goals.

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Disclaimer: All content provided is brief general information and not intended as legal advice. Always consult an attorney before acting. Please read full disclaimer at the bottom of the page.

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