Americans contributed $248 billion to charity last year.

As your wealth grows and the tax burden increases, you have probably thought about how making a charitable donation could best be used to benefit others — and yourself. Charitable trusts can help you increase the value of your donation by reducing your costs in capital gains, income, and estate taxes.

Charitable Remainder Trusts

A charitable remainder trust (CRT) is an irrevocable trust whose beneficiary is a charitable organization. Throughout the donor's lifetime, they receive regular payments (fixed or variable) from the trust. When the donor dies, the charity receives any remaining principal.

Assets donated to a CRT are not subject to capital gains taxes and will not be included in the donor’s taxable estate. In addition, the donor may take an income tax deduction on the value of the assets during the year in which the trust is created.

Charitable Lead Trusts

A charitable lead trust (CLT) is nearly the opposite of a CRT. With a CLT, the charity receives regular income generated by the trust throughout the donor’s lifetime. When the donor dies, their heirs will receive the assets in the trust.

Pooled Income Funds

A pooled income fund is an irrevocable trust to which several donors may contribute. Funds are administered by a charitable organization and pay donors regular income for the remainder of their life. When a donor dies, his or her contribution to the fund becomes the property of the charity. Donors are not subject to capital gains taxes and can reduce their current taxable income and estate.

The holiday season is the time of year many people are inclined to help others and improve their tax situations. If the season kindles your desire to give, consider how charitable trusts can help both you and the recipient make the most of your donation.

Always consult with your tax professional for specific information pertaining to your situation.

Roger Sorensen

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