Charitable Giving and Tax Considerations

Charitable giving in 2011 totaled $298.42 billion.* Giving by individuals which include amounts for charitable deductions claimed on tax returns filed for 2011 and charitable giving by individuals who did not itemize deductions – comprised 73% of all gifts given in 2011.* Split Interest Charitable Trusts are irrevocable trusts that combine taxable and charitable beneficiaries.  Assets are contributed and the Grantor receives an income tax deduction in the year of funding. Basis transfers with assets. The trust sells the assets and generates no current gain since the remainder goes to charity. And Grantor receives a distribution stream for his lifetime.

Post Mortem Planning:

For clients who are less concerned with income now and who are more interested in removing assets from their eventual taxable estate, the Charitable Lead Trust (“CLT”) is an effective way to accomplish this. In a non-grantor lead trust, the income interest goes to the charity for a term of years and the remainder goes to a non-charitable beneficiary. But unlike a CRT, there is no requirement that the CLT annuity is at least 5% or no more than 50% of the trust’s assets.

In fact, there is no requirement that this annuity is the same amount or percentage every year. The client would set up a Charitable Lead Annuity Trust (“CLAT”) that provides for minimal payments to the charity for the early years and then a balloon payment at the end of the term. This type of arrangement would allow for significantly higher appreciation in the early years since little or no assets are being distributed out of the trust to charity. Whether the assets perform well or not in the early years, the trust retains more assets for reinvestment. At the end of the trust term, because of the upfront growth of the assets in the trust, more assets should be going to heirs.   *Giving USA 2012 Annual Report on Philanthropy

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