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  • Writer's pictureAdam C. Nicolai Esq.


Are you looking to avoid capital gains taxes on the sale of an appreciated asset (such as real property)? Are you seeking to provide yourself or loved ones a stream of income during your lifetimes while also having the opportunity to donate to your favorite qualified charity or cause, as well as benefit from tax deductions?

A Charitable Trust might be for you!

There are two primary types of Charitable Trusts, the Charitable Lead Trust and the Charitable Remainder Trust.

Charitable Lead Trust: This trust type distributes a portion of its proceeds to a charity, for which you'll receive a charitable donation tax deduction equal to those payments. The remainder of the principal is then distributed to your beneficiaries. A Charitable Lead Trust, unlike a Charitable Remainder Trust, is not income tax-exempt. All income and capital gains are taxed to the trust, but the trust is allowed a charitable deduction for amounts paid to the charitable beneficiary.

Charitable Remainder Trust: With this trust type, you choose to receive income from the distributions of the assets you placed into the trust. You'll also receive a charitable tax deduction based on the present value of the remainder of the assets earmarked for the charity. At the termination of the trust or your death, your chosen charity receives the rest of the assets, which must be at least 10% of the value of the assets originally placed in the trust.

Charitable Trusts are complex, and for them to qualify and operate effectively, you will have to properly invest your assets, decide on an appropriate income stream, and comply with laws and regulations of agencies like the IRS and the California Attorney General's Office. Thus, creating a Charitable Trust is a team effort, where you will work with an estate planning attorney, a financial advisor, a CPA or tax advisor, a real estate broker, and other professionals as needed.

Also, once created, the Charitable Trust is irrevocable - even if you were to suffer a personal or business loss. So you should be well informed and certain of your decision before you execute such a trust.

That said, Charitable Trusts can be extremely beneficial to you financially depending on your circumstances, and are a popular instrument for creating income, doing philanthropic works, and saving on taxes.

*** Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney. It is likely considered advertising. ***


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