Planned giving can help you accomplish your charitable giving goals in part through your estate plan. In large estates it is sometimes difficult to eliminate large estate tax liabilities without the use of charitable bequests. These bequests can be outright through your will or in the form of various trusts.

Your will provides written documentation of your wishes, thereby preventing the state of your residence from appointing executors, guardians, and trustees who are not known to you. A will is the basic building block of your estate plan. Its primary purpose is to provide for the distribution of your property and to appoint individuals and/or institutions to certain key roles. The type of will appropriate for your estate depends on the size and complexity of your individual financial situation. In your will, you can document any specific charitable bequests that you want to occur beyond your lifetime. This may allow you to reduce your estate tax burden upon your death, while also ensuring that your giving goals and objectives are carried out after you are gone.

A trust is a vehicle that provides direction for the management and distribution of assets over a period of time. It can be used to help avoid probate costs and as an effective tax planning tool. A trust exists as a separate taxable entity and involves three parties: a trustor or grantor (the one who sets up the trust); a beneficiary (the one who receives some beneficial interest in the trust); and a trustee (the one who is responsible for managing the trust).

Charitable Remainder Trust (CRT)
The CRT allows you to transfer appreciated assets to a trust on behalf of a charity and liquidate them without immediate tax to you or the trust.

You also receive a current income tax deduction for the gift, determined by the annual payout rate and the term of the trust. The trust beneficiary, usually the grantor, receives a stream of income payments with the remaining trust assets or corpus going to charity at a specific period of time. At the end of the trust agreement, all of the remaining trust assets pass to the designated charity.

The use of a CRT allows you to diversify your assets and potentially increase your annual income when compared to the low-yielding assets you may currently hold. The CRT is irrevocable, so any gift made is no longer available for your personal use.

Charitable Gift Annuity (CGA)
A Charitable Gift Annuity works very similar to a CRT. A CGA involves a contract between a donor and a charity whereby the donor transfers cash or property to the charity in exchange for a partial tax deduction and a stream of annual income for a specific period of time. When that time period expires, all of the remaining trust assets pass to the designated charity.   

Non-Grantor Charitable Lead Trust (CLT)
A Charitable Lead Trust provides a means to give to charity for a specific period of time, with the remaining trust assets distributed to your designated heirs. The charity receives an annual amount for the length of the trust agreement, while trust assets are distributed to your designated heirs. 

This trust has a pre-established annual payout rate that goes to the charities of your choice for a determined period of years, and then the remaining assets are transferred to your designated beneficiaries.

A gift to the trust offers you no tax deduction; however, net income earned on trust assets is taxed to the trust rather than to you personally and is offset by income distributed to charity. The investment return achieved by the trust assets—versus the payout rate to charity—will determine the ultimate value of the asset that transfers to your beneficiaries at the end of the trust term.

Since your heirs will receive an amount in the future, transfers to this trust are a taxable gift based on the present view of the future interest.
Because CLT payouts are made to charitable organizations rather than being paid out to you, the trust allows you to continue charitable giving on an annual basis, but shields your estate from the trust asset income.

The trust accounting can be somewhat complicated and requires ongoing administration. When contributing assets to a CLT, you make an irrevocable decision, which could create some inflexibility for future estate planning purposes.

Ronald Blue & Co. (“RB&Co.”) obtains historical and other information from a wide variety of publicly available sources. The information and material provided is for informational purposes only and is intended to be educational in nature. We have taken all reasonable care and precaution to ensure that the information is fair and accurate, or has been compiled from sources believed to be reliable. We shall not be liable for any direct, indirect, or consequential loss arising from any use of or reliance on the information contained here. RB&Co. and its affiliates do not have, nor claim to have, sources of inside or privileged information regarding expected future returns on any investment proposed. The recommendations developed by RB&Co. are based upon the professional judgment of RB&Co. and its individual affiliates and neither RB&Co. nor its affiliates can guarantee the results of any of their recommendations. Clients and individuals at all times may elect unilaterally to follow or ignore completely, or in part, any information, recommendation, or advice given by RB&Co. and its affiliates.