In our last blog, we touched on the trust discussed in our episode, “Advanced Estate Planning, Charitable Strategies, and a Whole Lot of Acronyms!” Of the 6 trusts discussed, these last 2 were the ones specifically for those who wish to incorporate charitable planning in with their estate plan.
Once again, these trusts were used for VERY specific reasons; it is critical that you seek your estate planning professional’s advice, specific to your unique circumstances, so that they can identify the right strategy for you. With that said, here is a preview of charitable planning strategies Jeff Stephens shared with us.
Charitable Remainder Annuity Trust - Perhaps you are over the estate tax exemption, charitably minded, or both. A CRAT is much like a GRAT but with the twist of the tax benefit of donating to charity. In a CRAT, your lump sum minus retained annuity payments are taken as a tax deduction at the time of contribution. Much like in the GRAT where you get to transfer assets into the trust but retain rights to a stream of income from the trust, you get the same benefit in a CRAT. The two key differences are:
At the end of the agreed upon term the remaining gift plus growth go to a predetermined nonprofit of your choosing.
You get the tax benefit of the contribution up front, not at the time where the money actually goes to charity.
You can find attorneys that specialize in this area of planning specifically, we recommend you get highly specialized assistance with this sort of planning.
Charitable Lead Annuity Trust – This is similar to the CLAT but with a subtle twist. Instead of you donating to the charitable trust, receiving payments, and then the charity receiving the end amount, the parties are switched around a bit. You still donate the initial contribution, take the tax deduction, the CHARITY receives the income from the trust for the specified amount of time and your BENEFICIARIES receive the amount at the end of the term. The amount received by the beneficiaries is not part of your estate and so it is not included in your taxable estate. This can be very useful in terms of tax planning, reducing your estate taxes, and strategically allocating some of your estate to key beneficiaries.
We have heard stories of family fall outs because of a beneficiaries inheriting an unequal amount of an estate so by utilizing something like a CLAT (or a GRAT from our last blog post) you can discretely move assets out of your estate to be inherited unbeknownst to the rest of the beneficiaries in your revocable living trust.
Conclusion: This planning can greatly benefit you, beneficiaries, charities…but it is imperative to have it structured correctly. We believe in cost effective planning, but we also believe in GOOD planning. Sometimes the cheapest is not the best! Poor planning can negatively impact the legacy you leave for loved ones and the charitable causes you hold dear. Get a good referral, build your plan over time, and do it right!
For contacting Jeff Stephens directly regarding what you’ve read today, he can be reached by email at jstephens@gvmlaw.com or by phone at 916.789.3900.
If you want more general information regarding previous episodes, our Tech Rolodex, or topics you think we should research and cover, reach out at info@wealthpreservationpodcast.com.
This information is provided for educational purposes. You should not construe any such information or other material as legal, tax, investment, financial, or other advice.