Aside from donating directly to a charity, a trust is a strategy that permits you to kindly make charitable donations, and offers you and your heirs a generous deduction.  However, if you only want to offer a couple of smaller charitable gifts, then a trust in all probability is a strategy you could do without.  You should try to do some serious thinking before you establish a trust.

Charitable trusts, on the other hand require that you hand over legal management of your property and estate.  Charitable trusts become irrevocable when choosing that particular trust strategy, in turn, that particular trust becomes an entity you are not able to amendmend or regain legal management of.  

Below is a sample Case Study presented by Southern California Institute fellow, John Jenkins of Asset Preservation Strategies, during his most recent Charitable Trusts workshop.

Note: This information below has been changed to fit the purpose of public education.

CASE STUDY SAMPLE:

Situation:

• Jean, a widow, is age 81
• Her estate value is $7,000,000
• Her estimated federal estate taxes at her life expectancy are: $800,000 (if death occurs in 2013)
• Owns an apartment building worth $900,000
• While it produces a net income of $36,000 per year, she is weary of managing the property and would like to sell
• Her CPA tells her that, with her cost basis of $300,000, she should be careful of capital gains
• She has given significant gifts over the years to her alma mater, Winston College

Solution:

• Jean makes a gift of the building to a CRUT, naming Winston College as the remainder beneficiary
• Trust is established to distribute 7% of assets each year to Jean
• Trust sells the apartment building for $900,000 and reinvests the assets to produce 8% growth

Benefits:

• Delayed capital gains taxes within trust allows full use of assets for growth and future income
• Higher income than that produced by the apartment building
• Eliminates need to manage building
• Immediate income tax deduction
• Reduced estate taxation
• Support of her favorite charity

Sample Figures:

• Asset Value:  $900,000
• Cost basis: $300,000
• 7% payout requirement for trust
• Assume trust produces 8% growth of assets

Results:

• Potential Savings on Capital Gains Tax: $120,000
• Total Income Tax Deduction:  $542,457
• Could save $151,888 in taxes in 28% bracket
• Annual Income to Jean: $63,000
• $27,000 better than original income
• May increase each year, depending upon asset growth
• Remainder amount to Charity: $937,568
• The gift removes the asset from her estate, saving at least $360,000 in estate taxes (if death occurs in 2013)

What are your thoughts?  Strategies?  Collaborators?

How would you handle this situation?

To access the FULL DIGITAL program of this session:  CLICK HERE

You will be able to listen to the full MP3 audio, flip through the PowerPoint, and take notes on the worksheet provided to work through what you would do in this case.