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Should You Set Up A Charitable Trust?



The opportunity to set up a charitable trust fund gives you a lot of advantages. It’s something you might have wanted to do, and with this being a new year, are ready to move forward. By establishing a charitable trust fund, you can eliminate your capital gains taxes on highly appreciated securities by donating them to the trust and get a tax deduction to boot! But you’ve got to establish the trust in the same financial year in order to get the tax benefits. So again, new year – new trust. Perhaps time to consider a charitable trust for yourself?

2Advantages II

Setting up a charitable trust provides a double- benefit: First, you get the prestige and satisfaction of seeing the money that you have worked so hard for —-go to a good cause, like a charity. Second, you get to remove certain assets from your overall taxable estate. There are thousands of these charitable trusts being established every month. Some of them are surprisingly small. Others are quite large. Probably the largest charitable trust ever to be established is the one that Bill Gates set up. You’ll recall that later Warren Buffet joined in to help — which today has a joint asset value running into the tens of billions of dollars. You don’t have to have a billion to set one up, remember. In some forms, trusts can be established with just a few thousand dollars.

3Bill Gates And Warren Buffet

They realized that once money was invested in a trust, it became a property of the trust itself. It’s a legal entity that an attorney can set up. Once the money went into it, it could never be refunded. The fund is run by a trustee, who is usually a bank official or attorney. Depending on the size of the charitable fund, a full time trustee could need to be appointed. This trustee enjoys full responsibility in distributing the funds in the trust. Again, you may be thinking because of the stock market and real estate, time has passed to set up a charitable trust. But you may want to reconsider.

4Transferring Money The Right Way

Depending on the size of the charitable trust and your needs, you can pay a small tax paid stipend from the trust. However, as the founder of the trust, you have to ensure that this fact is written clearly in the trust documents before or during the trust’s establishment. That’s where services of a competent trust attorney come into play. In most cases, charitable trust funds are often established and funded from sales of assets – like stocks or real estate, so you want to make sure you transfer the money correctly. There’s a myriad of things going on here, and it should start with some wise counsel from a wealth advisor.

5Donating Stock

In most cases, a charitable trust fund is established and funded from sales of assets which normally would carry a fairly heavy capital gains tax. However, if you donate the stock to your gift trust, you won’t have to pay any capital gains tax on the transfer and you will get a tax deduction on the value contributed. A nice idea, right? Just remember that you will no longer own this asset and you will have given it away for perpetuity.

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.