Charitable gift annuity

How to Use a Charitable Trust to Leave Your Legacy

When it comes to money, it’s important to plan for what happens after you’re gone.

That includes giving to charitable causes you believe in. Such donations can help the organizations you support and it may also help save your family members money that they would otherwise pay in estate taxes.

Sound estate planning can help ensure this takes place. Below you’ll find 5 tips on how to leave a charitable bequest after you’ve passed.

1. Leaving a legacy to charity in your will

Just as you can specify what money or items go to people in your will, you can do this for a charity. This is sometimes known as a charitable bequest. You can name a charity in your will or your living trust to receive a certain amount of money or a percentage of your estate.

In your will, you can also donate specific items to the charity upon your death, which the charity can use at its discretion. That might mean donating a car, valuable artwork, real estate/property or collectibles. The charity might sell those and use the funds, offer them as auction items a fundraiser or even use them as part of the charity’s operations.

2. Charitable gift annuity

Another way to leave a charity your legacy is through a charitable gift annuity. An annuity is a long-term contract you typically purchase from an insurance or financial company. You invest funds over a certain period of time. Assets accumulate through the annuity, and in return, it pays the beneficiary a specified amount each month or year. That beneficiary can be you or someone you choose. You may use a specific commercial annuity for this purpose. However, it's also possible to invest in and gift the remaining assets from any income-producing property that makes payments to you.

A charitable gift annuity works in a similar way. In this case, the contract is between you and the charity, not you and the financial company. You or your chosen beneficiary get the financial benefits provided by the annuity while still living. When the beneficiary dies, the charity keeps the remainder of the money. The charity gift annuity is partially tax-deductible when you purchase it because a charity will receive a portion of the proceeds.

3. Charitable remainder annuity trust

A charitable remainder annuity trust involves designating a charity to receive money from the annuity or other investment vehicle you purchased when you or the designated beneficiaries die. You or your designated beneficiaries receive the annuity benefits while alive. When the beneficiary passes or the charitable remainder annuity trust period ends, the charity or charities you designated receive the remaining amounts of those assets.

A charitable remainder unitrust is almost the same thing. Instead of a fixed amount of money, the charity or charities receive a percentage of the assets when the beneficiary dies.

4. Charitable lead trust

A charitable lead annuity trust is the reverse of a charitable remainder annuity trust. In this case, the annuity’s immediate beneficiary is the charity of your choice. The annuity provides income (a percentage or fixed amount) to that charity for a certain number of years or for the life of the annuity donor. When the donor passes or the term ends, the remainder of the money then goes to the donor’s designated person or people (such as family members) instead of a charity.

5. Charitable gift fund

A charitable gift fund is sometimes known as a donor-advised fund. This is a fund that a person or family sets up with a financial institution, getting an instant tax deduction for all assets contributed. While that money is invested and earns interest, the proceeds will go to charity so there are no tax consequences to you.

A person can also put securities and real estate into the fund, which can provide tax advantages. The money from the fund is given to charities of your choosing in the amounts you want and when you request it.

Leaving a charitable legacy is a wonderful way to give back even when you’re gone. Given that estate planning is detailed and has a lot of tax implications and rules, it’s best to seek the advice of a financial planner to help you through the process.

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