Skip to main content

Charitable Trusts

What Are the Tax Benefits of Charitable Trusts?

Americans give freely to support the causes they value, from churches, education, and the arts to medical research. Fortunately, current tax laws encourage and even reward philanthropy. Beyond the basic tax deductions for charitable giving, setting up one or both of the following types of trusts could provide financial advantages in addition to the personal satisfaction that comes from giving.

Charitable Remainder Trust

When money, securities, property, or other assets are placed in a properly structured charitable remainder trust, the grantor or the grantor's beneficiaries receive payment of a specified amount at least annually. When the trust expires, the designated charity receives the assets that remain.

For the grantor, there are a few potential tax benefits: (1) Assets placed in the trust may qualify for an income tax deduction on the estimated present value of the remainder interest that will eventually go to charity. (2) At death, trust assets are not subject to estate taxes because they are no longer part of the grantor’s taxable estate. (3) Any appreciated assets in the trust are also exempt from current capital gains tax.

Charitable Lead Trust

A charitable lead trust is an estate conservation tool that uses the grantor’s assets to provide income to a charity. At the end of the trust period, the remaining assets are paid to the grantor or the grantor's beneficiaries. This type of trust could potentially reduce the estate tax due upon death, most notably on highly appreciated assets, because they are not subject to current capital gains tax.

Keep in mind that donations to both types of charitable trusts are irrevocable. This means that the assets cannot be withdrawn once the trust is formed. Also bear in mind that not all charitable organizations are able to use all possible gifts. It is prudent to check first. The type of organization selected can also affect the tax benefits that may be received.

When structured properly, these tools could possibly be used to benefit the charities of your choice and also help to reduce your tax obligations at the same time.

The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of experienced estate planning, legal, and tax professionals before implementing such strategies. Trusts incur upfront costs and ongoing administrative fees.

 

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ­purpose of ­avoiding any ­federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Solutions, Inc.

This information is intended for use only by residents of (AR, AZ, CA, CO, CT, DE, FL, ID, IL, IN, KY, MD, NC, NE, NM, NV, NY, OK, OR, TX, UT, WA, WI, WY). Securities-related services may not be provided to individuals residing in any state not listed above. Please consult with the FA as s/he may not be registered in all states.

For parties residing outside of the U.S., this information is: (i) provided for informational purposes only, (ii) not and should not be construed in any manner as an offer to participate in any investment or to buy or sell any securities or related financial instruments, and (iii) not and should not be construed in any manner as a public offering of any financial services, securities or related financial instruments. Products and services listed may not be available, or may have restrictions, depending on client country of residence.

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN). Wells Fargo Advisors is the trade name used by Wells Fargo Clearing Services, LLC and WFAFN, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company. Any other referenced entity is a separate entity from WFAFN.

Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.

A note about Social Media: Opinions, comments and actions taken on Social Media are those of the third party and do not necessarily reflect the views of the creator of this profile or of the firm. Social Media is intended for U.S. residents only and subject to the following terms: wellsfargoadvisors.com/social.

© 2022 Wells Fargo Clearing Services, LLC. All rights reserved.

FINRA’s BrokerCheck Obtain more information about our firm and its financial professionals

FINRA’s BrokerCheck Obtain more information about our firm and its financial professionalsX