Description
This session provides valuable insights into leveraging charitable trusts for tax-efficient giving and financial planning. Understanding the opportunities for charitable planning, such as qualified charitable distributions from IRAs and donations of appreciated property, can help optimize tax benefits. The session will also cover the intricacies of charitable remainder trusts (CRTs) and charitable lead trusts (CLTs), explaining how they can be used to manage income, maximize deductions, and plan for retirement or wealth transfer. By diving deeper into the characteristics and strategic uses of CLTs and CRTs, attendees can learn how to tailor these tools to their clients' needs, ensuring effective philanthropy and financial planning. This knowledge is crucial for providing comprehensive advice to clients and enhancing the financial professional's expertise, ultimately leading to better client outcomes and business growth.
Learning Objectives
Outline:
• The opportunity for charitable planning
o Qualified charitable distribution from IRA is functionally equivalent to 100% deduction
o Donations of cash can offset up to 60% of AGI
o Donations of appreciated property directly to a charitable organization can avoid recognition of gain
o Increased interest rates generate larger charitable deduction for contributions to charitable remainder trusts
o Charitable lead trusts can accelerate deduction for future contributions into current year to offset income spike
• Exception to general rule preventing tax deduction for partial or future contributions
o Charitable trusts meeting strict requirements
o Charitable remainder trusts
Non-charitable beneficiary gets income at least annually for term of years or life
After term, remainder goes to charitable beneficiary
Ideal for appreciated property, valuable for retirement planning
o Charitable lead trusts
Inverse of charitable remainder trusts
Income goes to charitable beneficiary for term of years or life
After term, remainder goes to non-charitable beneficiary (family or trust for family)
Can accelerate deduction for future distributions to charity into current year
• Deeper dive into CLTs
o Important characteristics
o If taxed as grantor trust, present value of charity’s income interest is tax deductible in year of contribution to trust
o IRS 7520 rate determines size of deduction now and hurdle rate for remainder interest later
o Can use 7520 rate of current or either of prior two months
Rates for May, April, March:
o Example of flat annuity
But there are many paths to the same average annual return
o Example of backloaded, or “shark fin,” CLAT
o Cautions in using CLTs
o Potential client profile for CLT
• Deeper dive into CRTs
o Important characteristics
o Higher 7520 rate increases charitable deduction upon funding of CRT
o Example of plain vanilla CRUT for life
o Comparison to selling appreciated asset and investing outside of CRT
o Use of life insurance to replace wealth being transferred to charity
o NiCRUT variation, NIMCRUT variation
o NIMCRUT example
o FLIP-CRUT example
o Potential client profile
• Review of CLT and CRT advantages