Charitable Trusts & Foundations

Private Foundations

The estate of a decedent is allowed an unlimited estate tax deduction for property left to a properly prepared private foundation. In addition, the private foundation may be set up as a trust or corporation that is exempt from income tax.  Consequently, at the death of the surviving spouse, many clients leave property to a private family foundation.  In addition to the elimination of estate tax, this allows the heirs to continue to carry on charitable work in the name of their parents. Often clients prefer to establish their family foundation during their lifetimes so that they can teach their children the value and practice of philanthropy.  If established during one’s lifetime, the private foundation will provide current income tax deductions for all contributions made to the foundation each year.  Setting up and maintaining a Private Foundation can be costly and is not for everyone. For those with substantial charitable purpose and plan however, they can be a wonderful vehicle to leave a lasting legacy.

Charitable Trusts

Giving to charity provides one with the opportunity to extend their legacy to future generations by benefiting those causes and organizations that they value the most.  With proper tax planning, this philanthropic desire can be accomplished while obtaining certain tax advantages. We often work with clients to set up Charitable Trusts designed to avoid the payment of capital gains taxes on appreciated property.  These Trusts can take the form of either a Charitable Remainder Trust (“CRT”) or a Charitable Lead Trust (“CLT”).  Generally, the grantor of a CRAT establishes the Trust and retains an income interest for life, or for a term of years (not to exceed 20 years). At the end of the trust term, the unspent principal of the CRT is paid over to a charity or charities, or private foundation (such as the grantor’s family foundation) chosen by the grantor or by the trustee. In a CLT, the grantor of a CLT establishes the trust so that the income is paid to the charity rather than the grantor.  After a period not to exceed 20 years, the remainder of trust assets is transferred to the grantor or his family.

The Charitable Lead Trust

For an article describing this particular trust, follow this link: Charitable Lead Trusts