There are many different tax issues that a person wishing to pass on his or her estate must consider. One of these considerations is the tax burden of the estate on future beneficiaries. One way that a person can reduce the tax burden is by passing assets or using income from a trust for charitable purposes. In Michigan, this can be done by using charitable remainder trusts and charitable lead trusts.
These trusts are different in the way they operate, although both kinds of trust benefit charitable organizations as well as other beneficiaries. A charitable remainder trust is a trust in which a person designates a person or several people as trust beneficiaries to receive the income of the trust for a specified period of time. When this period is over, or after the beneficiary passes away, the remainder of trust assets are passed on to a charity named in the trust.
In the case of a charitable lead trust, a charity is designated to receive the income from a trust for a period of time, after which the remainder of the trust assets are distributed to named beneficiaries. The person creating the trust can set it up in such a way that a charitable trust receives the income from a trust while he or she is alive, and then the remainder goes to beneficiaries after his or her death.
Choosing a charitable remainder trust over a charitable lead trust depends on the goal of the estate owner. Both forms of charitable trusts allow the estate of the trust creator to receive a tax deduction for the amount given to charity. In addition, the chosen charity receives the benefit of a generous gift to help its charitable causes. There are some requirements to register a charitable trust in some situations.
Charitable remainder trusts and charitable lead trusts are generally established as irrevocable trusts. This means that once the trust is established, the terms of the trust cannot be changed. It is important to conduct extensive research before settling on a charity to benefit from the trust. The trust can have alternate or contingent charitable beneficiaries in the event that a charity is not in existence at the time the charitable gift is supposed to be received.
There are other ways in which a person can diminish the impact that taxes may have on a person’s estate. Instead of setting up charitable trusts, a person can simply make charitable donations during his or her lifetime or by leaving property to a charity in a will. There may be more delays in terms of getting assets to a charity if the property is left to a charity in a will because the will has to go through probate. It is not possible to generalize which plan would work best for an estate without looking at the particular needs of that estate.
Contact an Experienced Estate Attorney
For more information on the use of trusts, and to learn more about how you can put together an estate plan that addresses your individual needs and wishes, contact Resnick Law, P.C., to consult the experienced estate planning attorneys in Bloomfield Hills and Detroit, Michigan.
(image courtesy of TimMarshall)