Plan Your Legacy trust
A trust is similar to a will in that it can dictate how your property is distributed after your passing. However, under the law a trust is considered a contract and generally does not require the involvement of the probate court. For this reason, some people prefer to use a trust in their estate planning.
There are many types of trusts that serve a variety of purposes. The advice of an attorney or qualified financial planner is necessary to assess your situation and decide which trust might best serve your goals.
A charitable trust is a flexible way to serve your current and long-term financial and philanthropic interests. Through a charitable trust, a donor gives cash, stock, real estate, or other assets to a trust, which is invested and managed by a professional financial institution of the donor’s choice. Once created, a charitable trust is irrevocable. Charitable trusts take two forms — charitable remainder trusts and charitable lead trusts.
These trusts provide you with both income and certain tax benefits for a portion of your gift.
Through a charitable trust, a donor makes an irrevocable transfer of property — cash or other assets — to a trust, which is invested and managed by a professional financial institution of the donor’s choice, producing income for the donor or other beneficiary, either for a fixed period of time up to twenty years or until the donor or other beneficiary dies. At the conclusion of the trust period, the remaining principal assets will be distributed to the Truman Library Institute.
Example: Mr. and Mrs. E. (ages 78 and 73) have $300,000 worth of stock purchased for $80,000 twenty years ago. The stock pays dividends of 3 percent per year. They decide to place this stock in a charitable remainder unitrust, which will pay them (or the survivor of the two) an annual income of 6 percent of the value of the trust. Upon their deaths, the remainder interest of the trust assets will go to the Truman Library Institute.
With the trust, they double their income from the property, avoid capital gains tax on the increase in the value of the stock, and receive a significant current income tax deduction. Most important to Mr. and Mrs. E., they know that upon their deaths the trust will provide a wonderful gift to further the work of the Truman Library Institute.
Furnishes you — or someone you designate — with a fixed annual income for life or for a pre-determined number of years (up to twenty).
The payment amount — which you would determine when you establish the trust — must be at least five percent of the initial gift amount. That amount will not change over the life of the trust. This will appeal to those who want the security of a regular amount each year. When the trust is created, you may claim a charitable deduction based on the value of the asset used to establish the trust.
Many people are choosing to distribute their property after death through a revocable living trust. If properly established, this trust can minimize or avoid probate costs for the estate. In some cases, the living trust may also help keep your estate affairs private, and will allow you to appoint someone to handle your affairs if you should become incapacitated. However, the attorney fees to draft a living trust are generally higher than those for a will, and the costs to actually distribute your property after death may be comparable to what it would be through the probate process.
There is also the issue of re-titling all your assets into the name of the trust. Many people fail to complete this process, which means that probate will still be necessary with their estate along with the administration of the living trust. It is important to work with a qualified professional who can help ensure that your trust is properly established and implemented.
A charitable lead trust is an irrevocable gift arrangement that lets the charity of your choice benefit now, because it receives the trust income during the term you set for the trust. You also establish a beneficiary (which is not a nonprofit organization) to receive ownership of the trust property after its term.
While there is a current tax deduction from a charitable lead trust, it is generally lower than for a charitable remainder trust. The lead trust is not used as often as the remainder trust. However, if you have little need for immediate income and are willing to trade some current income for tax advantages, this might be a good choice. To effectively this type of trust a person should fund it with a minimum of $250,000 in assets and an estate value of between three and five million dollars.
Example: Mr. N. received a large inheritance when his mother passed away. While he wanted to pass some of these funds to his children in the future, he did not need the money or investment income from it now. He established a charitable lead trust which made quarterly payments to the Truman Library Institute for 10 years. Upon termination of the trust, the remainder of the assets in it will pass to his children. By using this type of instrument, he was able to make generous gifts to charity during his lifetime and still leave a significant legacy to his children. He also received favorable tax treatment by using this trust.
Note: The decision to use any trust should only be made after looking at all the factors of your estate plan. The advice of an attorney or financial advisor who is well-versed in estate planning is necessary to determine which instrument is best for you.