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Charitable Trusts + Low Interest Rates = Tax Savings

Trusts & Estate Planning


by Kira S. Masteller


Some people don't like to talk about death and because of that fear, distaste or superstition; they put off planning for the future. But think about it this way: 

When you pass away, your money and assets will go to one of two places. They will either go to (1) People you care about, or (2) Institutions who have already received your money throughout your lifetime – the State and Federal Governments. 

Those are very broad categories, but it's essentially true. When we talk about the people you care about, we mean more than just those individuals who make up your immediate family. 

In estate planning, “what” you care about may include people, such as yourself, your children, your siblings and your friends – but might also include your alma mater, a national animal rights group, your favorite church or the local Elks Lodge, among many, other organizations. 

The CLAT – Smart Moves in Tax Savings


One way to make sure you provide for all of the people and charities you care about is through a CLAT, or Charitable Lead Annuity Trust. The benefit of the CLAT is that you can take advantage of some huge tax breaks right now, while interest rates remain low. In fact, the lower the interest rate, the bigger the tax savings through CLAT. 

These charitable trusts will pay your favorite charity or charities a pre-determined amount of money for a pre-determined time frame, leaving whatever funds or assets that are left at the end to revert back to you, your heirs, or even to another trust. 

If using a CLAT to pass along assets to beneficiaries, your heirs wind up with whatever funds or assets you used to fund the CLAT, and the possibility of very little or no gift tax liability at the end of the term.  For example: 

You own stock that yields dividends (income) you do not need.  You put $100,000 of that stock into a 10 year CLAT that gives $5,000 annually to a program that benefits at-risk teens. The income from the stock increases the value of your CLAT, and at the end of the term, your children get the principal stock, plus the profits it generated. The gift tax your children will owe is based on what the IRS projected the charitable trust to be worth when you first set up the CLAT. 

If employing a CLAT for yourself, you will get the original assets back, and an income tax break. 

Charitable Trusts can be a convenient way to make sure both your heirs and your favorite organizations receive gifts during your lifetime, while you gain an ever-important tax break. 

Kira S. Masteller is a Shareholder in our Trusts & Estate Planning Practice Group. If you have questions about tax planning, business succession planning, or shifting your assets, please call her at 818.990.2120.


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