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Charitable trusts offer tax benefits for donors and beneficiaries

On Behalf of | May 10, 2024 | Trusts

Charitable trusts provide tax advantages that benefit both donors and beneficiaries. These benefits serve as strong incentives for people and families looking to include charitable giving in their financial planning.

Understanding these advantages can help maximize the impact of charitable efforts while providing significant financial benefits.

Tax benefits for donors

When someone creates a charitable trust, they often receive an immediate income tax deduction. The deduction amount depends on the type of trust, the value of the assets placed in it and the term of the trust. The IRS usually allows donors to deduct the current value of the remainder interest that will go to the charity later.

Charitable trusts can also help donors reduce their estate taxes. By placing assets in the trust, the donor removes them from their estate, reducing the overall estate tax liability when the donor dies. This reduction becomes important for people with large estates who want to support charitable causes while minimizing estate taxes.

Charitable trusts also avoid capital gains tax when selling assets within the trust. If the trust sells stocks or real estate that have appreciated in value, it will not pay taxes on the gain. This benefit allows the trust to reinvest the entire sale amount into other assets, increasing the overall financial benefit to the charities.

Tax benefits for beneficiaries

Charities named as beneficiaries of a trust benefit greatly. They receive the full donation without tax deductions, allowing them to use the full amount to support their programs. Direct transfers without tax costs ensure that the charity can use the maximum amount of resources to fulfill its mission.

When planning their estates, donors can set up charitable trusts to maximize the benefits for themselves and the charities they support.


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