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What tax benefits are available from a charitable trust?

A charitable trust, also called a charitable remainder trust, lets you leave assets to a charity of your choice after you are gone. The trust can also put some conditions on how and when those assets might be used by the trust, so you can be sure your wishes for your legacy are protected. Another benefit of this type of trust is that it can help alleviate some tax burdens. Here are three tax benefits associated with charitable trusts.

If you put property in a charitable trust, it resides in that trust even during your life. You can still use the property, depending on how you set up the trust, but when you die, it passes directly to the charity you named. That means the property is not included in your estate, so the value of the property would not be included in determining the taxable value of the estate.

The value you put in a charitable trust can be used to create a deduction on your income tax returns over a five-year period. The amount of the deduction depends on both the initial value of the gift and the return value you expect to receive on any asset associated with the trust. For example, you might create a charitable trust and fund it with $50,000 in investments. The core $50,000 goes to the charity upon your death, but while you are living, any return on the investment comes to you. If you can expect a $10,000 return, you can only claim a total of $40,000 worth of related deductions.

You can also use a charitable trust to reduce the tax burden when you sell assets that have appreciated. For example, if stocks have appreciated over time, you can't sell them without paying a capital gains tax. A charity, which holds the stocks in trust, can do so, and then it can reinvest the funds and you might receive the dividends from those investments.

Working with charitable trusts can be complex, which is why you should also consult an estate planning professional before you take any action. While trusts can be beneficial, remember that they do tie up your assets in some ways.

Source: FindLaw, "Tax Incentives for a Charitable Remainder Trust," accessed March 03, 2017

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