Charitable trusts are irrevocable – meaning once they are established the income belongs to the trust and not to the individual. There are benefits to setting up a charitable trust aside from helping an organization or person. Here are a few of the many things to know about charitable trusts in California.
Charitable trusts are free of the burden of federal and state taxes. Some people set up a charitable trust to help them decide how assets are spent or allocated without the risk of beneficiaries having to pay a portion of their inheritance as income. There are some loopholes, and it is important to work with a qualified attorney who understands estate laws and trusts.
Setting up a charitable trust correctly means that the bulk of the assets in the trust will be free of taxation. When you have a will, the distributed assets are often taxed as an inheritance.
A will must undergo the probate cycle within 18 months of a person’s death. With an irrevocable trust, including charitable trusts, probate is not required. That means that the beneficiaries do not have to undergo court oversight and the assets are available through the guidance of the trust. The process can be quicker and there is no additional cost for legal and court expenses. The probate process can be expensive.
Not only is a charitable trust free of the burden of probate, but the details of the trust are private. An estate that undergoes probate is a public process. So, another benefit of charitable trusts is that they remain less publicized.
Can a charitable trust hold a life insurance policy on a contributor to the trust? In short, yes. A person who sets up the trust can include a life insurance policy that leaves the charitable trust as the beneficiary. That process can be complex, and the policy must be set up correctly.
The benefits paid out by the insurance policy belong to the charitable trust. That means that the payout is not personal income or gain, and it will not show up as income on the estate.
Setting up a life insurance policy with the payout going to the charitable trust is an excellent way of providing money that covers the cost of estate taxes and other fees.
A house or property can be set up within a charitable trust or irrevocable trust. When that process occurs, the property or home is no longer part of your estate. Under estate laws, the difference between the value of the house when it was entered into the trust and the value of the house at the time of death is not taxable as part of your estate.
Setting up a property or home as part of a charitable trust can help reduce the final taxation on your estate. The other perk is that you may be permitted to live in the house without paying rent.
Trusts can be complex and an experienced Estate Planning lawyer is essential. Charles D. Stark serves the greater Sonoma County community and California with experienced estate planning. Reach out for more information about managing your estate.