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Are The Amounts That Go To Charity Excluded From Your Taxable Estate?


Yes; any portion of an estate that goes to charity does not count as a portion of the estate when it comes to inheritance tax. There is no limit to this.

Can You Allow Your Beneficiaries To Disclaim In Favor Of A Charitable Vehicle?

Yes, you can allow your beneficiaries to disclaim in favor of a charitable vehicle. The way a disclaimer works is that the beneficiary simply states that they do not want to receive the inheritance. They cannot direct where that inheritance will go; that would be an assignment. An assignment has very different tax consequences than a disclaimer. A disclaimer simply says that the person doesn’t want the inheritance. The donor needs to have provisions in the estate planning documents which state that if the beneficiary disclaims, then the charitable distribution will be made either directly to charity or through one of the specific types of trusts that we’ll discuss later. This is something that needs to be done during the donor’s lifetime so that it can be done as a disclaimer and receive the most favorable tax treatment.

What Are The Different Ways That Annual Charitable Deduction Donations And Bequests At Your Passing Can Be Made?

In general, they can be made immediately and outright to the charity, either during the person’s lifetime (as with any ordinary charitable gift that one would make) or immediately upon a person’s death. It could be set up that way in their trust or in their will. It can also be done through annuities, charitable irrevocable trusts or an arrangement known as a donor-advised fund. This is probably one of the most underused methods of giving to charity.

A donor-advised fund is an irrevocable gift that is made to a fund that holds that gift. The donor gets credit for making the gift, and they get a tax deduction in the year that they transfer the money to the fund. At any time after that, the donor can direct the fund to donate all or a portion of what they’ve contributed to a particular charity. So, it allows the person to get a charitable deduction in one year, but to hold the funds and determine the charity in a future year. They can either amass larger amounts so that their gifts to charity can be in greater amounts, or they can simply defer making a decision of which charity gets the money at a particular time, while getting an income tax deduction for the donation in the current year.

Are Irrevocable Trusts Used In Tax Advantage Giving?

Irrevocable trusts are very good tools to use for tax advantage giving. They allow a person to create an immediate charitable deduction and a vested interest for a charitable organization while still retaining some benefits of those assets during the donor’s lifetime, as explained below.

What Is A Charitable Lead Trust? How Is It Established?

A charitable lead trust is an irrevocable trust that the donor would create. The donor would transfer assets to this trust. For a fixed period of time established by the donor, the trustee of that trust would make an annual contribution to charity out of the trust. The trust earns income each year, which offsets at least a portion of the gift. Those gifts are made to charity for that fixed period of time. Whatever is left in the trust at the end of that period goes back to the donor or the donor’s beneficiaries. The advantage of the charitable lead trust is that it allows the money to go to the donor’s family or other beneficiaries with a much lower inheritance tax impact.

If we were to put one million dollars in a charitable lead trust and allow a charity to take a percentage from that over a number of years, the children could still receive a million dollars several years later, but only half of that amount (or even less) would impact the inheritance tax. It’s a good way to defer a portion of the gift for the beneficiaries, allow a charity to have an income stream and reduce the overall inheritance tax on the estate.

What Is A Charitable Remainder Trust? How Is It Utilized?

A charitable remainder trust simply reverses the parties from a charitable lead trust. In a charitable remainder trust, the donor sets up and transfers assets to the trust. Those assets pay an income to the donor for a period of time. Whatever is left after that period of time goes to a charity. We commonly see these used for people who have highly appreciated assets, such as rental property, stocks or other securities that have gone up significantly in value.

When an asset increases significantly in value, inherent capital gains issues can arise if that person wants to sell that asset. A charitable remainder trust allows the donor to transfer the assets to the charity, and since they’re transferring the assets in kind, there is no capital gains tax. The charitable trust can then sell the assets. Since the charitable trust operates as a charity, the charitable trust does not pay any capital gains tax.

Then, the trustee of the trust can invest the entire amount of the sale to generate income for the donor. If the donor had to sell the assets and pay the capital gains, then they would only have 75% to 80% of the value of the assets to invest for future income. So, it can generate a lot more income for the donor than they would be able to do themselves. These can be set up so that they will pay out their income for the donor’s lifetime or for a fixed number of years (or some combination thereof).

For more information on Tax Exclusions For Charity Donations, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (626) 385-6303 today.

Newell & Havens Attorney At Law

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