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Charitable Giving Is Easier than You Think In An Estate Plan- And Offers Nice Tax Breaks

| October 15, 2018
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Charitable Giving Is Easier than You Think In An Estate Plan-

And Offers Nice Tax Breaks


Many of you reading this are involved in our community by giving of your time, talents and often money, yet too few realize that it is not all that complicated to give in a different way and potentially qualify for a nice tax break.


What if you still need income from your investments?  Then maybe a charitable remainder trust could be the right tool for you.  These allow a donation of appreciated assets while generating current income.   If you have highly appreciated assets (like long held stock or real estate), and are concerned about capital gains, gift, and estate taxes, you may want to consider a charitable remainder trust (CRT). These can provide an income stream and a potentially sizeable charitable income tax deduction while benefiting the charity of your choice and eliminating capital gains taxes on assets placed in the trust.

A CRT is an irrevocable, tax-exempt trust in which you place assets to provide income for you during a specific period of time (e.g., your lifetime or a term not to exceed 20 years). At the end of that period, the remaining assets will be turned over to the charity(ies) of your choice.

It is important to note that by establishing a CRT, you giving up your rights to the assets you in the trust and your family/ heirs will not inherit assets placed in the CRT. Some donors offset the gift by purchasing life insurance with all or some of the income generated from the CRT or by using savings incurred by the charitable income tax deduction.

There are different options for setting up a charitable contribution through your estate plan. The easiest is a simple bequest through your will. Remember that charitable contributions are 100% deductible from estate taxes.


Benefits of a CRT:

  • In many cases, there are no capital gains taxes on assets transferred to a CRT;
  • Has the potential to generate substantial income for the donor; and
  • Creates income tax deductions for the donor.

Designing a CRT

A CRT must be designed in the form of either an annuity trust or a unitrust. Both allow flexibility in payment options. The main difference involves income and fair market value of the assets in trust. Income from an annuity trust is a fixed percentage (not less than 5% or more than 50%) of the initial fair market value of the assets.

This type of trust is best used with assets that will be able to generate the required income and do not fluctuate greatly in value (such as bonds). The income to the donor is fixed and will not grow as the asset base grows. Consequently, the income may not keep up with inflation.

A unitrust is a more flexible, but risky, alternative. Here the donor still receives a fixed percentage (not less than 5% or more than 50%) of the value of the assets in the trust, but assets are valued annually.  The donor then receives the fixed percentage of the current fair market value. This allows the donor to benefit from any growth in the investment; of course, there are no guarantees such growth will occur. Note that a unitrust allows for additional contributions, whereas the annuity trust does not.

A unitrust has better potential to keep up with inflation because the income payments will increase if the investment grows in value. However, if the value of the assets in the trust falls due to market conditions, the income also will decrease. In an annuity trust, the donor is guaranteed the same income payment regardless of current asset value and thus is protected from a possible market downturn. Ultimately, the choice between an annuity trust and a unitrust will be dictated by a number of factors as best determined by your advisory team.



CRTs Must Be Annuity Trusts or Unitrusts

Annuity Trusts

  • flexibility in payment options
  • fixed income payout
  • inflation risk (fixed payout may not keep up with inflation rate)


  • flexibility in payment options
  • variable income payout
  • market risk (variable payout can rise or fall with changing value of underlying assets)

Charitable Lead Trusts (CLT) and Foundations

Though a CRT may sound like the ideal choice for your charitable bequests and estate planning needs, you might also consider these other options.

A CLT is essentially a CRT in reverse. Unlike a CRT, a CLT allows you to place in trust assets that will be left to your heirs; however, you specify a set number of years during which a guaranteed amount of a fixed percentage of the value of the assets in the trust will be paid to a charity. You pay discounted gift taxes on assets transferred to the trust and do not receive a charitable deduction. However, your heirs ultimately will receive trust assets free of estate taxes.

Another possibility is setting up a foundation allowing systematic gifts to an area of special importance to you. Foundations can fund college scholarships, research grants, and the maintenance of collections or real estate, among others. More and more clients are opting to use donor advised funds- we can even link these to an investment statement for easy reporting- that offer low cost, centrally managed oversight of the investments and tax reporting.  These platforms can be limited to a select list of non-profits or more open and flexible to provide you with a long list of charities to give to.

A Win-Win Proposition

When planning your estate, you should consider making a charitable contribution. In addition to the altruistic benefits of donating to charity, you can also gain significant tax advantages. Though perhaps one of the more popular estate planning tools is the CRT, you might consider the benefits of other options as well. Talk to your financial advisor or legal counsel to determine which option is right for you.


Securities and financial planning offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

Jayne Di Vincenzo holds her Securities Registrations for  the Series 24, 53, 7, 31, 65, 63 with LPL Financial, a Registered Investment Advisor.  She also holds her life, health and long-term care licenses. Member FINRA/SIPC.  Jayne has served her clients with advice, financial planning, investments for over 20 years and has three offices in Hampton Roads and is licensed in 25 states. or 757-599-9111 and online at



LPL Tracking # 1-655631

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