People in Oklahoma City who want to leave a legacy may want to explore the option of setting up a charitable trust. There are significant advantages, though the benefits typically only apply to people who are looking to make sizeable contributions.
According to the IRS, a charitable trust is not tax exempt, and the proceeds from it may be donated to one or more causes. In most cases, these trusts are treated as a private foundation. The advantages of setting up such a trust include the following:
- The trust's creator can take an income tax deduction that may be spread over five years
- The donated property is no longer considered part of the person's estate and is therefore not included when estate taxes are determined
- Using highly appreciated property such as real estate or stock can help the creator avoid capital gains taxes.
As Forbes magazine points out, there are two types of such trusts: charitable lead trusts and charitable remainder trusts. A charitable remainder trust enables someone to set up the trust and transfer it to the property that will be donated to a charity that has been approved by the IRS. The charity will act as the trustee and manage that property, giving a portion of any income the property generates to either the person who created the trust or someone else who has been named. When the creator of the trust passes away or the end of a specified term expires, the property is donated to the charity.
A charitable lead trust is similar, though the payouts are made to the charity, and not the creator of the trust or other non-charitable entity. Experts note that people who are making smaller donations to nonprofit organizations may not need to set up a trust and should consult with a professional to determine the proper course of action.