Estate Planning Part 1 – Charity

TaxConnections Picture - Living Trust Estate PlanningEstate planning is very important, but it’s obviously an uncomfortable topic to discuss with the family. The sooner you address it, the more options you will have and the better off the beneficiaries will be. Let’s break this into three parts with Part 1 focusing on the charitable aspects of estate planning. Part 2 will focus on a middle aged person who maybe has kids and who has parents that might still be living. Part 3 will focus on the classic grandparents getting older and their kids are grownups, with probably some grandkids in the mix.

For taxpayers that are somewhat charitable in nature, estate planning can play an important role in their charitable giving both while they are alive and after they pass. The simplest way to give money to charity is to include them in your will. Either a specific amount or a residual amount of the estate can be given to charity. One common example is to give your beneficiaries the amount that would be tax free, and any excess assets that the estate has would go to charity. That’s simple to do and simple to understand but sometimes that is not the best solution.

For people with substantial assets and a charitable inclination, a CRUT can be a great solution. Basically there is a chunk of assets set aside for the charity and the taxpayer gets a current charity deduction (present value). When the taxpayer dies, the charity gets all the money. While the taxpayer is still alive they receive an income distribution from the CRUT so they haven’t given up the income stream during their lifetime. It’s a bit more complex to understand and there are some costs to setting up and operating a CRUT, but it can be worthwhile for people with larger estates.

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