In the process of leaving an inheritance to their loved ones, most Staten Island and New Jersey residents also want to gift causes meaningful to them. Such causes may range from educational institutions and religious organizations to health and research facilities, libraries, local theatres, food banks, and shelters to the homeless. At Merlino & Gonzalez, our knowledgeable attorneys are eager to help you incorporate charitable planning into your estate plan for practical, as well as humanitarian, reasons.
Charitable planning is an important part of estate planning since it serves philanthropic, financial, inheritance, and tax planning purposes. In all likelihood, you are motivated to donate to a charity by more than one of the following:
- Your strong belief in the cause
- Your faith in the integrity of the particular institution or organization
- Your belief that your donation will have a positive impact
- Your wish to have your charitable gift as a part of your legacy
- Your personal connection to the charity
- Your desire for tax benefits
Most people don’t have to search for long to find a cause that is especially significant to them, such as research to seek a cure for the disease to which they lost a loved one, resources for children with a syndrome that affects a relative, an environmental group that is working hard to slow global warming.
Contact our legal team to find out how we can help to achieve your goals. We will discuss whether you prefer donating a lump sum to your chosen charity or parceling your donation out over a set period of time. We have a number of options to offer and the skill set to put them into effect.
Multiple Types of Charitable Planning
There are a number of ways to give to a worthy charitable organization, including:
- Creating a Charitable Lead Trust
- Establishing a Charitable Remainder Trust
- Establishing a Charitable Gift Annuity
- Creating an Endowment Fund
- Creating a Donor Advised Fund
- Establishing a Conservation Easement
- Making the charity a beneficiary of your Life Insurance
- Starting a Private Foundation
It should be noted that any charitable trust you create will be irrevocable. Let’s take a look at some of the most common types of charitable planning.
Charitable Lead Trusts
A Charitable Lead Trust is designed to make annual payments to your chosen charity for a certain number of years, after which the trust assets will pass to one or more noncharitable beneficiaries. Typically, these beneficiaries are children or grandchildren of the grantor (the individual who created the trust), many of whom will be or age by the time they inherit.
The annual payments to the charity can be either a Charitable Lead Annuity Trust (CLAT) that provides a fixed percentage of the annual fair market value of the trust or a Charitable Lead Unitrust (CLUT) that pays the same percentage every year.
At the time of its creation, a Charitable Lead Trust is considered a charitable gift and qualifies for the gift tax charitable deduction, but once it transfers to noncharitable beneficiaries it is deemed a taxable gift for which the donor must either apply for their unused estate and gift tax exemption or pay a gift tax.
Charitable Remainder Trusts
A Charitable Remainder Trust arranges for property or funds to be donated to a charity after the donor dies, but the donor continues to use the property and/or receive income from it during their lifetime. When a Charitable Remainder Trust pays a fixed annuity amount, it is known as a Charitable Remainder Annuity Trust (CRAT). When it pays a certain percentage of the trust annually, it is called a Charitable Remainder Unitrust (CRUT).
In a Charitable Remainder Trust, beneficiaries receive the income upfront and the charity receives the principal after a specified period of time. This enables the grantor to avoid any capital gains tax on the donated assets and to also receive an income tax deduction for the fair market value of the remainder interest that the trust earned.
The amount of the gift tax charitable deduction is variable, depending on:
- The length of time payments will be made to the grantor
- The size of the payment to the grantor
- The rate at which the IRS calculates the present value of the charitable payments
Also, the asset is removed from the estate, reducing subsequent estate taxes.
In all types of Charitable trusts, the contribution is irrevocable, but the grantor may have some control over the way the assets are invested. Grantors may even switch from one charity to another (as long as the second charity is also a qualified charitable organization).
Donor-Advised Fund (DAF)
In a DAF, the donor can contribute cash, stocks, cryptocurrency, real estate, and other property in exchange for an immediate tax deduction. These assets can appreciate without tax consequences. Although the donor can make recommendations on prospective charities, the sponsoring organization has the final choice on the charity that receives the funds, and the charitable donation is irrevocable.
Some of our clients feel that starting a foundation is the way they want to enhance their legacy. According to the IRS, to qualify for a tax exemption, your foundation must serve a charitable purpose involving religious, educational, scientific, literary, public safety, national or international amateur sports, prevention of cruelty to children or animals or maintain a public building. It should not be hard to fit into one of these numerous categories. Depending on the source of your foundation’s assets and the nature of its activities, it may be either public or private.
Contact the Experienced Charitable Planning Attorneys at Merlino & Gonzalez Today
Our charitable planning attorneys are well-prepared to assist you in determining how you can best sync your wish to be generous to a cause you believe in with your need to provide well for your loved ones and your desire to receive maximum tax benefits. Contact us to plan a future you can be proud of.
Merlino & Gonzalez meets the charitable planning needs of estate planning clients throughout New York and New Jersey.