Advanced Estate Planning

What is the Difference Between a Charitable Lead Trust vs. a Charitable Remainder Trust?

If you are philanthropically minded, then you may want to consider making a charitable trust part of your overall estate plan. What is really a win-win with charitable trusts, is that you can also enjoy certain tax, and other, benefits while doing something good for the world. In fact, you can use a charitable trust so that your assets can benefit you, your beneficiaries, and a charitable organization – all at once. 

In this article, we are going to talk about the two main types of charitable trusts so you can consider whether one type might be appropriate for your own estate plan. If, after reading this article, you are inspired to make sure that your estate plan includes charitable giving, we welcome you contact us, the accredited estate planners, at Doane & Doane, PA. Call today at 561-656-0200 or fill out our online contact form.

1. Some Charitable Trust Basics

Before diving into the difference between the two main types of charitable trusts, there are two important things to keep in mind with regard to any charitable trust.

Qualified charity. First and foremost, whichever trust you choose, you should make sure that the charity of your choice qualifies as a charity with the Internal Revenue Service (IRS) if you are going to receive charitable tax deductions as part of your estate plan.

Irrevocability. In addition, once you have created a charitable trust, it is irrevocable – even if you suffer a personal or business loss after setting the trust up. That means that, with few exceptions, you cannot change the charitable trust once you have created it.    

Now, let us move to the types of charitable trusts. The main types of charitable trusts available are a charitable lead trust and a charitable remainder trust.  The two types of trust are really both sides of the same coin but can serve different purposes. 

2. The Charitable Lead Trust

A charitable lead trust, when assets are to be distributed, will first distribute some of the assets to the chosen charity. That distribution will allow you to receive a charitable donation tax deduction equal to the payment. Then, the remainder of the principal of the trust is then distributed to your beneficiaries.

It is a “lead” trust because the trust leads with the charitable gift first. By contrast, there is the charitable remainder trust.

3. The Charitable Remainder Trust

By creating a charitable remainder trust, you can benefit both the charity of your choice and a family member. You create a charitable remainder trust and make it the beneficiary of your IRA. The charitable remainder trust is a split-interest trust, meaning that you choose the family member who should receive annual payments from the charitable remainder trust for a specified period of time. Once that time has elapsed, and the family member’s interest in the charitable remainder trust ends, then the remaining amount in the charitable remainder trust is giving to the charity of your choice.  

Why use a charitable remainder trust? Because the charitable remainder trust itself is, similar to a charity, a tax-exempt entity. Thus, when you pass away, the funds that go into the charitable remainder trust are not taxable. The family member who receives annual payments from the charitable remainder trust, however, will need to claim those as income.  

For either the charitable lead trust or charitable remainder trust, you want to make sure that you consult an experienced, accredited estate planner to assist you. There are some rather complicated rules and procedures associated with any trust, including charitable trusts. So, that is something that you do not want to handle alone without legal assistance. 

Why Have a Charitable Trust?

In considering whether to create a charitable trust, think about the possibility of making an impact on the world.  With a charitable trust you can help others, even long after you have passed away – a good legacy indeed.

Plus, a charitable trust comes with benefits to you in the form of tax incentives and avoidance of capital gains on real property and stock holdings.  

The effect of a charitable trust, of either kind, is that you are reducing the value of your estate by donating some of it to charity. It will also avoid probate for those assets, which is always a good thing, and it also set up a reliable stream of income for your beneficiaries while you are still alive, if you so choose.   

In sum, there are many options and benefits when incorporating charitable giving into your estate and tax planning.   To ensure that you know all of your charitable giving options, call a seasoned estate planning attorney today.    

Look to Doane & Doane for Help When Adding Charitable Giving to Your Estate Plan 

Founded in 2003 by husband and wife legal team, Randell C. Doane and Rebecca G. Doane, Doane & Doane provides legal and financial services to families, individuals, and businesses throughout southeast Florida.

Estate planning is about much more than just giving away property. It is an act of love and kindness, with the ultimate goal of providing for the future financial security of your loved ones and/or the charity of your choice – particularly during the COVID-19 pandemic.  

At Doane & Doane, our attorneys help people plan for retirement, make provisions for loved ones, and minimize tax liability. Our experienced estate planning attorneys know which tools to use to get the best results for their clients.  Our lawyers can help you determine which tools are best suited to your specific circumstances.

In addition, when it comes to probate matters, such as the formal administration of an estate, Florida fiduciaries seek the assistance of the attorneys at Doane & Doane, P.A. to administer and manage their trusts and estates. Notably, the founding partners of Doane & Doane are board-certified West Palm Beach Probate Attorneys. With the additional advantage of certified public accountancy in their backgrounds, they present a unique combination of skills and experience which enables them to effectively settle, administer, and manage clients’ trust and estates.

Call us at Doane & Doane, P.A., for estate planning services in Florida. You can reach us at 561-656-0200. Call us today.