Estate Planning Selecting the charitable trust that suits you

In addition to the obvious benefits of helping those in need and supporting the work of organizations you feel passionate about, choosing to incorporate charitable trusts into your family’s financial plan may create:

• Income tax reduction based on the value of your gift
• Lower estate taxes and gift taxes (depending on the structure you choose)
• A way to transfer highly appreciated assets such as stocks or real estate that preserves their full value rather than having that value reduced by capital gains taxes

But some of these benefits can be conditional by state. Residents of Arizona and California can claim state income tax deductions, while residents of Connecticut and Michigan can’t. So it’s essential to assess the ways in which your state regulates charitable trusts. Truist does not provide tax or legal advice, so, as with any tax situation, always talk to your Truist Wealth advisor and your personal legal and tax advisors to understand the potential impact of your strategy on all aspects of your finances.

At the national level, this attention to the details of laws and regulations can be even more important.

For example, in 2017 Congress significantly increased the standard federal deduction and capped state and local tax deductions, which reduced itemized charitable deductions by roughly 20%.^{Disclosure 2} With the passage of the CARES Act in 2020, legislators reversed this trend by enacting a non-itemizer universal charitable deduction that generated an additional $18 billion in nonprofit donations across 47 million households. But in 2021, that deduction expired and donation levels dropped—though legislative efforts are underway to reinstate the deduction permanently.^{Disclosure 2}

The high likelihood of frequent and wide-ranging legislative changes such as these should be factored into your decision as to whether to use a charitable trust. If you do incorporate one into your overall wealth plan, a financial professional can help with the consistent monitoring and fine-tuning that keeps your charitable trust efficient and adaptive in the face of shifting laws and regulations.

If a charitable trust fits your overall wealth plan, your next big step will be selecting the type of trust that suits your intended giving strategy. While your options will vary, essentially there are two basic types of charitable trusts: charitable lead trusts (CLTs) and charitable remainder trusts (CRTs). The primary difference between the two comes down to who receives the income stream during the life of the trust and who receives the remaining assets when the trust expires.

Charitable lead trusts

With a CLT, you transfer property to a trust that’s set up to benefit a qualified 501(c)(3) charitable beneficiary of your choice. The charity receives income from the trust for a set period of years (or the life of the donor), after which time the remaining assets are passed back to either the donor or their beneficiary according to the terms of the trust. If you’re currently making—or would like to make—regular gifts to a favorite charity, a CLT may offer a more efficient way to make them.

Charitable remainder trusts

CRTs are basically the mirror opposite of CLTs. The trust pays an income for life (or a set period of years) to you, you and your spouse, or someone else you’ve chosen as your beneficiary. The trust ends at the death of the last income beneficiary (or a fixed number of years if that’s what the trust specifies), and the charity then receives all remaining assets. A CRT funded with highly appreciated assets allows the trust beneficiary to benefit from the sale of those assets without paying capital gains tax.

CRTs can also provide a simple way to generate income from assets or property that wouldn’t otherwise be available. The trust can tax-efficiently sell the assets and provide you with an income stream (either now or in the future) with the designated charity receiving the remaining assets.

But no matter which trust you select, keep in mind that its management is a dynamic process that requires ongoing supervision. In addition to upfront costs associated with establishing a charitable trust, there are also maintenance fees. When setting up your family charitable trust, it’s important to be precise with your structuring, as assets placed in the trust are irrevocable. Perhaps most importantly, the IRS has specific rules governing the percentage of trust assets that must be received by the charity to qualify for tax benefits.

For these reasons alone, having the know-how of a financial professional can be crucial to the smooth establishment and top-quality maintenance of your trust. Wealth advisors can help efficiently express your charitable desire, optimize your benefits, and safeguard your estate and retirement planning. They can help design an asset distribution strategy that incorporates the consequential instructions and careful guidance of your legal counsel and tax advisor and that harmonizes with your overall wealth plan.

Any comments or references to taxes herein are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.