The Shifting Role of Charitable Giving

With the recent changes to the tax code many were concerned that charitable giving might not continue to occupy as prominent a role in the estate planning world. Naturally, opportunists took a contrary position treating the tax changes as a key opportunity to estate planning professionals to revisit charitable giving with a view toward identifying new opportunities. Charitable giving is certainly not dead and a charitable giving plan can still be a crucial piece of the broader estate planning strategy.

Embrace the Shift

Historically charitable vehicles have been most often utilized in an attempt to leverage a decedent’s ability to pass estates in excess of the federal estate tax exemption to the next generation with little to no tax exposure. However, with the increase of the federal estate tax exemption to an unheard-of level of over $11 million per individual, it is time to shift the attention form transfer tax planning to asset protection, business succession, income tax relief, and other family legacy matters. Thankfully, charitable planning can play a role in achieving these goals as well.

There are a variety of tax-advantaged vehicles available to individuals that incorporate charity. These vehicles allow for achieving goals of asset protection, income tax relief, or other family legacy goals while also providing a social good. One such vehicle, the Charitable Remainder Trust (CRT) can be especially beneficial to individuals who own highly appreciated assets. Those assets have substantial built-in gains that will be taxed at the time of sale. Careful planning and potentially utilization of charitable vehicles can minimize or even eliminate the tax burden on such assets.

A CRT is a special form of irrevocable trust that provides benefits to multiple parties: the donor, the individual receiving distributions from the CRT, and the qualified charity. Typically, the donor donates highly appreciated assets to the CRT. In return, the donor, the donor’s spouse, or even both may receive a stream of payments from the trust over a period of years or for their lifetimes. There is even opportunity to structure the “noncharitable” distributions to benefit other beneficiaries, including the donor’s children (although there are potential gift-tax consequences to consider and strict IRS rules on trust viability). At the end of the noncharitable term, the remainder of the trust is distributed to the charity or charities selected by the grantor.

The benefits available through a charitable remainder trust are substantial. The donor receives an immediate income tax charitable deduction for the remainder interest transferred to the charity. Additionally, the highly-appreciated assets in the CRT are able to be sold free of capital gains tax (because the CRT is tax-exempt). The qualifying charity may be changed over time, and may even be a private charitable foundation established by the grantor and operated by the family to allow future generations to guide the family’s philanthropic activity. In most instances, the people with the best understanding of a grantor’s philanthropic goals are those closest to the grantor, such as children. A Charitable Remainder Trust is a great vehicle for reducing individual tax burdens while making the most of a highly-appreciated asset.


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