Charitable Trusts Can Be Used to Reduce Estate Taxes

When the time comes to modify your estate plan, you may have enough assets that you face potential estate-tax liabilities when you pass away. Some clients in this position opt to utilize certain estate planning techniques to minimize the impact of this tax. One technique is to incorporate irrevocable trusts into the estate plan. There are many different types of irrevocable trusts that can be used for this purpose. One example is a charitable trust designed to reduce income and estate taxes through gifts to a charity.

Types of Charitable Trusts

The following three irrevocable charitable trusts can be used to minimize estate taxes:

  1. Charitable remainder trusts. When creating charitable remainder trusts, you put your property into the trust, name a charity as the final beneficiary, and name someone different to receive the income from the trust during a specified period.
  2. Charitable lead trusts. To create a charitable lead trust, you put your property into the trust, name a charity to receive the income from the trust for a specified period, and then name someone else as the final beneficiary.
  3. Pooled income trusts. When creating a pooled income trust, you pool your money with other people who are making trusts and opt to receive the trust income for a specified period. The charity that you choose is named as both the trustee and the final beneficiary.

Charitable trusts can be used to minimize the taxes payable by your estate as well as accomplish certain charitable goals. For more helpful tips, sign up for our free newsletter today!

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