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Exploring the benefits of a charitable trust

When it comes to estate planning, individuals have a wide variety of options. This can easily become complex and confusing, as one may not know what they need or how these documents will impact their future. Thus, it is important to understand how estate planning documents, such as a trust, work and how they could benefit you.

When it comes to trusts, there are a variety of trusts to consider. Not all are created equally and not all individuals in Ohio and elsewhere could benefit from drafting a trust. With regards to a charitable trust, this allows individuals to benefit others while also obtaining estate tax benefits. While a charitable trust is not a tax-exempt, it is deemed a charitable contribution deduction. The main reason why individuals would give a charitable gift at their death is because they are deductible without limit and they help reduce the taxable estate.

The first type of charitable trust is a Charitable Remainder Trust or CRT. This is an effective estate-planning tool for those holding appreciated assets with low basis, such as stocks or real estate. By funding a trust with appreciated assets, the donor is able to sell assets without the occurrence of a capital gain. A CRT provides individuals with an efficient way to enjoy three benefits: transfer appreciated property, benefit from the charitable income tax deduction and reduce estate taxes.

The next type of charitable trust is a Charitable Remainder Annuity Trust or CRAT. This is used in situations where a donor provides a non-charitable beneficiary with a stream of income that lasts for a specific period of time. The final type of charitable trust is a Charitable Lead Trust. This type is used to reduce the donor's taxable income by first providing a portion of the trust's income to a charity and transferring the remainder to the trust beneficiaries after a specified period of time.

A charitable trust has the ability to benefit a charity, the donor's estate and their beneficiaries. If this type of trust could benefit you, it is important to understand how to go about setting it up and drafting it. This will also ensure that it will be properly executed at the time of your death.

Source: Investopedia.com, "Estate Planning: Charitable Trusts," Cathy Pareto, Accessed Nov. 5, 2017

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