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The potential tax benefits of a charitable trust

Charitable giving is immediately beneficial.

Not only can you help others long-term, but research has uncovered many health boosts when you engage in charitable giving, including higher levels of self-esteem, lower levels of stress and depression, lower blood pressure, and increased happiness.

To put it simply: charitable giving is good for everyone.

The benefits of charitable giving don’t end there.

When applied strategically to an estate plan, a large gift can also be a tax boon – for yourself and loved ones.

For example, here are three positive tax impacts you might see from the creation of a charitable trust.

  1. An income tax deduction

A charitable trust is generally established with a high-value asset, such as cash, stocks or real estate.

Once this asset is transferred to the trust, the chosen charity manages or invests it. The type of trust used will dictate how payments are made, to whom, and at what time.

In most cases, the value of this gift can be claimed as an income tax deduction, and spread out over five years. This provides an immediate boost to potential tax obligations. However, keep in mind you can only claim the difference between the asset’s value and the value of any payments received as part of the arrangement.

  1. A smaller estate tax burden

When a valuable asset is transferred to a trust, you no longer have ownership over it. Because it is no longer your property, it is not considered when calculating potential estate tax obligations.

This can be significant.

The optimal assets for a charitable trust are those that have greatly appreciated in value. A shrewd estate plan will use this to your advantage.

  1. Turn an asset into cash while avoiding some taxes

If you sell a high-value asset (such as stocks) for cash, the tax bill can pack a real wallop.

Charities do not operate under the same rules. The charity can sell your asset without a tax penalty and invest the funds.

With a charitable remainder trust, a beneficiary (such as yourself or a loved one) can then receive regular payments from this investment while avoiding a nasty bite from the capital gains tax.

Proper set-up is required

Charitable trusts are irrevocable. Once created, they cannot be undone. It is vital then that an individual interested in taking advantage of this type of opportunity do so with caution. Relying on knowledgeable professionals can help ensure your charitable goals are met and your finances remain protected.

If you have questions about, or interest in, creating an estate plan that involves charitable giving – be it in the form of a simple bequest, complex tax planning, or anything in between – contact Bashian P.C.

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