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Estate planning: supporting a noble cause

Charitable trusts are a handy tax-saving tool. But, they can also greatly benefit a charity of your choice.More and more retirees are volunteering for charities and nonprofits in an effort to contribute to their community and stay active and healthy. Even the Peace Corps has seen a large increase in the number of older volunteers. But, there’s a way you can contribute to society without going overseas; it’s called a charitable trust. It has become an increasingly popular way to contribute to charity, as well as save money on taxes.Catherine Hammond Shell, attorney for Hammond Law Group*, said, “A good estate plan builds from the basic to the advanced planning stages based on the goals of my clients. An attorney who is trained in and regularly practices this type of law best completes this type of advanced planning. This is not something you do at home or over the Internet. The nuances are complex and, if not done properly, the outcome can be the opposite of what your goals are.”Trusts, simply put, are a way to transfer assets and property into one solitary group. With a charitable trust, the assets and property contained within it provide an income for you during your lifetime. After you pass away, the remaining assets are given to the charity within the trust. There are two major forms of charitable trusts: charitable remainder trusts and charitable lead trusts. Charitable trusts have a host of benefits, as well as a few drawbacks, but here are the basics.Charitable Remainder Trust (CRT)A charitable remainder trust has two beneficiaries. In most cases, one of them is you (and possibly your spouse) and the other is the qualified charity or tax-exempt organization you plan to support. During your lifetime, you receive a set percentage of income from the charitable trust. Once you pass away, the charity then receives whatever is left over. If your spouse was receiving income as well, he or she will continue receiving it until passing away.One of the benefits of a charitable remainder trust is that you may be able to become the trustee and make decisions about the assets within the trust, including investment choices and other important matters. Charitable remainder trusts are irrevocable, but you may be able to change the beneficiaries when you wish. This allows you some degree of personal freedom, especially if you find a charity or nonprofit that you feel is more deserving of your gift.With a charitable remainder trust you get to choose the amount of income you’ll be paid from the trust on an annual basis. According to the Internal Revenue Service, every year you must distribute at least 5 percent of the value of the trust’s assets. Depending upon the type of trust, you can value the assets for distribution purposes at the time the trust is funded or on an annual basis. Some beneficiaries choose to take more, but it’s generally recommended to take no more than 10 percent.All realized profit from investment sales within the trust is not subject to capital gains tax. This is because you are benefiting a charity. Charitable trusts are especially helpful when it comes to highly appreciated assets with limited income-producing potential. By avoiding the capital gains tax, more money goes to your charity instead of Uncle Sam. You also get an income tax deduction because your CRT supports a charity. Please note, however, that income from trust assets is subject to federal income taxes.In addition, with proper planning you can benefit your favorite charities and avoid taxes without taking any money away from your heirs. “One of the most common techniques is to use the lifetime income to purchase a life insurance policy. You name your heirs as the beneficiaries and when you pass away, the amount you gave to charity still gets paid out to your beneficiaries – tax free,” Hammond Shell said.Charitable Lead Trust (CLT)A charitable lead trust is basically the same concept as a charitable remainder trust, but in reverse. With a CLT, a charity receives a certain percentage of income every year. Once you pass away, whomever you’ve named as the beneficiary (a spouse or children) receives the assets that remain. A CLT offers the same advantages of a remainder trust, but the roles are reversed.Both charitable remainder trusts and charitable lead trusts offer a variety of advantages over traditional estate planning tools. Above all, they allow you to give back to society while still taking advantage of tax deductions and exclusion from capital gains taxes.There are numerous details and complex steps to take when looking at a charitable trust as an estate planning option. You should find a trusted financial professional to help guide you through the process. He or she can usually refer you to an estate-planning attorney who will also help. Like all estate planning options, trusts have their pros and cons, but they’re certainly a good option worth considering, if you wish to save on taxes, support a good cause and feel great about it in the process.*Catherine Hammond Shell is the founding attorney of Hammond Law Group, LLC, based in Colorado Springs, Colo. The firm’s practice is limited to estate and business planning. Hammond Shell is a member of the American Academy of Estate Planning Attorneys.Alex Donnell is a nationally published author on financial planning, investing and estate planning. He is the president of Colorado Comprehensive Wealth Management LLC, (719) 886-3377, or

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