Charitable Trust Lawyers in Topeka
Trusts are set up for many different purposes. It is more common than most people realize for someone to pass on estate assets to a charitable cause via a trust. You don’t have to be rich and famous to want to leave a legacy.
Charitable trusts can help you donate to a cause you hold dear, while also providing attractive tax advantages for you and your heirs.
However, once you create a charitable trust, it is permanent and cannot be amended or cancelled. So, it is not a decision to take lightly.
The estate planning lawyers at Irigonegaray, Turney, & Revenaugh LLP in Topeka can advise and assist you with setting up your trust to accurately reflect your wishes.
Learn More>> Learn More About Living Trusts
What are the benefits of a charitable trust in Kansas?
People who set up charitable remainder trusts do so mainly for the following benefits:
- Leaving a legacy by donating: giving to a cause you hold dear sets an example for younger generations in the family about doing something for the “greater good”.
- Tax advantages: after you fund your charitable trust, you can enjoy several tax benefits including tax deductions, estate tax benefits and capital gains tax benefits. More about this below.
- A new source of income: a charitable trust can be set up to provide an income for you or a beneficiary – a fixed amount per year or a percentage of the trust’s value.
Because of the considerable financial benefits associated with setting up charitable trusts, these types of trusts are irrevocable. If they were revocable, it would be easy to set up the trust as a way to avoid certain taxes temporarily with no lasting financial commitment to the cause or benefit to the charity.
Once you set up your charitable trust, the terms cannot be modified and the trust agreement cannot be nullified. You cannot get back what you have given.
What types of charitable trusts are there in Kansas?
Once you set up a charitable trust, you transfer all the assets you want to donate to a tax-exempt charity approved by the Internal Revenue Service.
The two main types of charitable trust are described below:
Charitable Remainder Trust
This is the most popular type of charitable trust. It benefits the beneficiary before the charity.
The trust makes payments to one or more non-charitable beneficiaries (e.g., you, your children, your grandchildren) and the charity serves as the trustee, managing the trust funds and making investments.
The charity pays income to the beneficiary for a certain number of years or for his or her lifetime depending on your instructions. It then receives the remaining assets in the trust and the trust is closed.
Charitable Lead Trust
A charitable lead trust first benefits the charity: you commit to providing a sum of income for a certain number of years (or for your lifetime).
When the period finishes, the remaining assets go to a non-charitable beneficiary, such as children or grandchildren.
When you transfer assets into this type of trust, you receive a charitable deduction for the value of the gift (as determined by the IRS).
What are the tax advantages of a charitable trust?
There are three main tax benefits to setting up a charitable trust. These can amount to significant savings for you and your heirs.
Income tax deduction
Firstly, after you fund a charitable trust, you will be able to take an income tax deduction and spread it over five years for the value of your gift to charity.
It is not as simple as deducting the dollar value of what you donated. The IRS will calculate your total deduction minus what you can expect to receive back through interest payments.
So, if you donated $100,000 but you expect to get $40,000 back over your lifetime, your deduction would be $60,000.
Estate tax benefits
Property transferred to the trust will not be considered part of your estate when estate tax calculations are made because it will go to the charity outright on your death.
This saves money for loved ones that you’ve left property to.
Capital gains tax benefits
There are also investment benefits to setting up a charitable trust. With a trust, you can turn investment assets that have appreciated but don’t generate income into cash without paying capital gains tax.
You do this by transferring non-income-producing assets like stock into a charitable trust, allowing the trust to sell them, and then receiving income from the proceeds when the trust reinvests this cash into other opportunities (such as mutual funds).
How to set up a charitable trust in Topeka
The basic steps required to set up a charitable trust in Topeka are as follows:
- Discuss your requirements with one of our estate planning lawyers
- Compare the different options presented to you
- Select the trust type that matches your needs: charitable remainder trust or charitable lead trust
- Decide which assets – and how much – you want to transfer
- Decide on the beneficiary/trustee – remember the charity must be IRS-approved for you to receive the tax benefits
- Set up the trust with a bank, investment firm or other financial institution
- Create the trust agreement, specifying how payment amounts are calculated and the frequency of payments
- Fund the trust by transferring cash, stock, real estate, business interests, etc.
Remember, charitable trusts are irrevocable and cannot be amended once set up.
Need help setting up a charitable trust in Kansas?
Whether you are considering your options with trusts or are ready to set up a charitable trust and need some advice, the estate planning lawyers at ITR Law can provide considered guidance so that you meet your objectives with your trust.
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