Generosity and a desire to help the less fortunate are undoubtedly important factors behind most charitable giving. However, these are often not the only factors. Certainly, many contributors are motivated in large part by the tax advantages associated with the making of charitable gifts. Tax Treatment of Charitable Contributions

Subject to certain limitations, contributions to qualified charities are deductible for income-tax purposes. Most contributions are made to so-called "public" charities (i.e., churches, tax-exempt educational institutions, exempt hospitals, and medical research organizations, etc.). These contributions are deductible in full up to 50% of your contribution base (essentially, your adjusted gross income). Deductions that cannot be taken in one year because of this 50% ceiling can be carried forward for tax purposes up to a maximum of five years. (Special rules apply for gifts of appreciated property and for gifts to nonpublic charities.)

And the tax advantages of charitable giving don't stop with the income-tax provisions. The federal gift- and estate-tax laws also provide for the deduction of charitable gifts. For gift-tax purposes, the full value of a contribution made to or for the use of a qualified charitable organization is free from gift tax. Similarly, bequests made to or for the benefit of qualified charities are generally deductible from a deceased donor's estate for estate-tax purposes. (Note that the federal estate tax is scheduled to be repealed in 2010.)

The Use of Charitable Trusts

Many people who are in a position to — and have a desire to — make sizable charitable gifts are nevertheless frequently reluctant to do so. The reason: They are wary of parting with money or property during their lifetimes when a need for that money or property (or the income generated by that money or property) may later arise. It's in these situations that the use of a charitable trust may be desirable.

Basically, charitable trusts come in two varieties: charitable income or "lead" trusts and charitable "remainder" trusts. A charitable lead trust is usually set up so that a qualified charity (or group of charities) receives the income from the trust for a term of years. At the end of the term, the trust property reverts to you, your estate, or to another person (your spouse, for example).

If certain strict — yet easily complied with — requirements are met, you will be entitled to an income-tax charitable contribution deduction for the value of the entire charitable income interest in the year you establish the trust (within the tax law's limits). Consequently, you realize a substantial, immediate tax deduction without having to forever relinquish the trust property.

More common, however, is the use of charitable remainder trusts. Under the terms of a charitable remainder trust, income is payable to you or another person for life or for a term of years. At the end of the term, the remainder of the trust property is payable to the qualified charity or charities specified in the trust agreement.

Once again, if the inevitable tax law requirements are satisfied, an income-tax charitable contribution deduction will be immediately available to the donor — this time in the amount of the value of the charitable remainder interest. Charitable trusts can play an equally dramatic role in your estate planning. Indeed, the sophisticated use of such trusts can eliminate the estate tax on even a multi-million dollar estate. A charitable remainder trust (with income payable to your spouse and children for their lives) established in conjunction with a marital deduction trust is a tried-and-true method of accomplishing this tax-saving result.

Even more spectacular, from some people's perspective, are the results that may be secured through the creation of a charitable lead trust in a will. With such a trust, remember, the charitable organization receives an annuity for a fixed period of time, with the trust remainder passing to your heirs at the end of that period. Given an annuity of sufficient size and duration, the charitable deduction can offset the full value of the trust principal.

Result: Again, when used in conjunction with a marital deduction trust, your estate can avoid estate taxes altogether -- regardless of the size of your estate. More important, though, this result can be accomplished without the permanent loss of any of the trust property, since the "lead" trust principal will eventually revert to your heirs.

Conclusion

Can a charitable trust help meet your needs and objectives? Possibly. But such trusts are obviously not for everyone. Only a careful examination of your personal financial situation can assist you in determining whether a charitable trust makes sense for you. And, with the repeal of estate taxes scheduled for 2010, professional guidance is highly recommended.

While a charitable trust may or may not be in your future, financial planning should be. Our organization is well versed in a wide-range of tax- and financial-planning techniques — from comparatively simple cash bequests to charitable organizations, for example, to super-sophisticated charitable "lead" trusts. And our experience and knowledge are yours for the asking. Give us a call. We want to help.