The charitable trust is relevant to those who are willing to give their property or asset to a charity, and in return, the charity guarantees that the heirs of the property owner will receive a large tax break. The work begins first with ensuring trust within the charity through the charitable remainder trust. Before making a donation to the charity, make sure it is recognized by the revenue system and has significant tax-exempt status. The assets or property that you wish to give to charity are entrusted to a trust.
The charity then acts as trustee and decides the ways to invest the property and assets held in the trust. The charity will grant to your designated beneficiary by granting the income earned by investing the property and assets for a specified period which is up to your lifetime or the stipulated period of time. At the end of the stipulated time period, the property placed in the trust goes to the charity.
Tax breaks offered by the charity:
- Income tax: Whoever donates can obtain an income tax deduction for up to five years for the contribution made, interest rates based on rules present in the trust document
- Wealth tax: If your estate is eligible for federal estate tax at the time of your death, then the assets that are included in the trust do not become part of the taxable estate and everything that is present in the trust will pass to the charity after you. die.
- Capital Gains Tax: If you are going to sell your property at a higher price than the time purchased, then you must pay capital gains tax on the property. Because you have placed your property under a charitable trust, you are authorized to sell the property and are responsible for paying the proceeds, since capital gains tax does not apply to any type of charity.
Receive income from a charitable trust:
- Annual fixed income: You can set the net annual income of the charity. Once you set the amount as irrevocable, the charity pays you the stipulated amount each year.
- Percentage of assets: There is also another option instead of the fixed annuity; you can receive a certain percentage of the value of the asset in the trust annually. This is helpful during the economic crisis, but be careful if the value of the asset decreases, then there is a chance that you will earn less money than the previous year.
The need for a lawyer:
Estate planning can lead to disaster if not planned properly due to the terminologies involved. Take the help of commercial litigation lawyers who are experienced in this field to sort out all the intricacies and gain a proper understanding of all the clauses before entrusting a decision.