What is a living trust?
A revocable living trust is an arrangement you create during your lifetime to provide for yourself and your family both before and after your death. You transfer assets to fund the trust and select a trustee (even yourself) to manage it. It’s a remarkable way of making a significant contribution to a charity of your choice.
What are the advantages of a living trust?
Revocable living trusts have been called the most flexible financial planning device available. The main advantages are: flexibility, control, investment management, tax savings, lower probate costs, swift distribution of trust assets and, last but not least, privacy. Let’s take a look at these advantages one by one.
- Flexibility: A living trust can be either revoked or amended by you, which means you can change the terms of the plan or withdraw assets any time you wish.
- Control: You name both the beneficiaries and the trustee of the living trust. You can name yourself as the trustee during your lifetime as well as maintain the right to appoint and select successor trustees and beneficiaries. You can also control the income and principal and how much of it you wish to use during your lifetime.
- Investment management: You may choose a professional trustee to manage the fund on a day-to-day basis, thus freeing yourself of the responsibilities while at the same time maintaining control over investment goals and strategies. Or, you can choose to give your trustee broad decision-making and managerial powers over the trust, while receiving regular reports as to the current state of affairs.
- Tax Savings: Your attorney or tax accountant can help you to structure your living trust to maximize the advantages afforded to you under federal estate tax laws.
- Lower probate costs: The assets you place in a living trust are removed from your estate for probate purposes thus saving you the probate and administrations costs you would have to pay if the same assets were distributed by the terms of a will.
- Swift distributions of trust assets: The plan of distribution you have pre-determined through the terms of the living trust is carried out immediately at your death avoiding the delays that normally occur under distribution by will.
- Privacy: Because a living trust bypasses probate, its contents are not a matter of public record. Details of the trust will remain private even after your death.
How does this differ from other charitable gift plans?
By establishing a living trust you are in effect reserving the right to change your mind. Although you are not able to take advantage of the substantial income tax deductions afforded under other plans, such as an irrevocable trust, there are nevertheless many other benefits available, including estate tax savings.
For example, the trust can be written so that the value of the assets distributed immediately to a charitable organization following your death completely avoids estate tax.
A living trust is a financial plan that works to your advantage. It allows you the decision-making power you may need, along with the overall tax savings you will appreciate, while truly reflecting your support of and commitment to a charitable cause.
If you’re like many investors today, you may own appreciated assets, such as stock or real estate, that you are reluctant to sell because of the significant capital gains taxes you would owe. At the same time, you may be looking to increase your cash flow or diversify your holdings. That would mean selling those valuable assets, paying the applicable taxes and reinvesting at less than the asset’s full value. Fortunately, there is a solution to this dilemma.
Charitable trusts provide very flexible and powerful tools that can allow you to avoid taxes in two or three different ways, increase your current and/or future income stream, and provide vital support to a charity that you care about.
Although there are a number of types of charitable trusts, most of them work in basically the same way. You transfer a portion of your assets to the trust. You would usually use highly appreciated assets because the charitable trust can sell these assets without incurring the capital gains taxes that you would have had to have paid. In addition, you would receive a federal income tax deduction for the present value of the amount of the remainder going to the charity at the end of the trust. In addition, you would remove these assets from your estate and would not have to pay gift or estate taxes on this property. Furthermore, if you had property like real estate or growth stock that was producing little or no income, you can increase the amount of current income that you are receiving. Finally, at the end of the trust, all of the remaining assets would go on to the charity. This support from you would be the vital lifeblood that would keep the charity’s good works continuing until far into the future.
In summary, by establishing a charitable remainder trust, you can:
- Eliminate immediate capital gains taxes of up to 28% on the sale of appreciated assets, such as stocks, bonds, real estate and other taxes;
- Reduce estate taxes of up to 50% that your heirs might have to pay upon your death;
- Reduce current income taxes by a deduction of up to 30% of your total income for the year;
- Increase discretionary income throughout your lifetime;
- Make a significant future charitable gift;
- Receive the benefits of tax-free compounding;
- Avoid probate;
- Maximize the assets your family will receive after your death.
To accomplish these above benefits, you can set up a Charitable Remainder Unitrust Trust or a Charitable Remainder Annuity Trust with your lawyer and bank. The main feature of these trusts is that you make an irrevocable designation of part of your property to the charity. In return, you get tax benefits as well as an income stream.
You could also set up a charitable lead trust. In this case, you give the charity the right to receive the income from your property for a term of years or the life of a beneficiary. At the end of that term, your family or beneficiaries receive the property back. There are some strange tax consequences to this trust, so be sure to talk to your lawyer first before setting one up and read the information in our Sample Charitable Lead Trust page below.
If you would like to learn more about these ways to give, please click on one of the following links:
If you have any further questions about giving through a will or a trust or about the mission of Rangjung Yeshe Gomde California, please contact firstname.lastname@example.org.