Charitable giving as an estate planning tool

On Behalf of | Jun 15, 2021 | Estate Planning

Estate planning can be an emotional process for a San Diego resident. As they assess and inventory their assets and wealth, they may have to make difficult decisions about how and to whom they wish to pass on their possessions. Ensuring that an individual’s testamentary goals are accomplished can be challenging, and many individuals choose to engage with estate planning lawyers when they begin the process of preparing testamentary documents.

However, estate planning is also a financial process. Individuals of significant wealth may need to look for different options to protect their assets from taxation after they die. One tool that individuals in this situation can use is charitable giving. This post will discuss charitable trusts and what estate planners can use them for as day consider their options for their assets. Readers are reminded that this post does not provide any legal recommendations or advice.

Types of charitable trusts

A charitable trust is a trust set up for the purpose of benefiting a charitable organization. There are two general forms of charitable trusts that California residents may choose to utilize at their discretion in their estate plans. The first is the charitable remainder trust. A charitable remainder trust makes a chosen trust the trustee of trust assets that benefit the trust creator until their death. When the creator dies, the remainder of the trust goes to the charitable organization.

The other type of charitable trust is a charitable lead trust. In this form of trust, a charitable organization benefits from the trust for an established number of years or period of time. Once that period ends, the remainder of the trust goes to another named beneficiary.

Why charitable giving can help with estate planning

Estates can be taxed by the federal government when they exceed a stipulated threshold that changes from year to year. If an individual’s estate assets exceed the taxation amount in the year that they die, their state may be reduced based on taxation. Charitable giving is often exempt from taxation and can help an individual lower the value of their estate amount. A knowledgeable estate planning lawyer can advise their client of these matters and how they may relate to their specific legal needs.