Charitable Planning Attorney in Colorado Springs, CO
“You have not lived today until you have done something for someone who can never repay you.”
― John Bunyan
Buckley Law provides counsel for clients desiring to have charitable impact in their estates or their businesses. We also advise nonprofit organizations on how to maximize their ministry or organization’s impact with clients who are charitably inclined. Our nonprofit work also includes filing IRS Form 1023 for certifying the nonprofit status of a new charity. We have done numerous 1023s, and have been successful in every application to the Internal Revenue Service.
What Types of Clients use Charitable Trusts?
- Clients that want to avoid or defer capital gains on the sale of real (land) or personal (closely-held stocks, stuff) property.
- Clients that want to obtain a charitable income tax deduction for a gift of property, but continue to receive income from the property for their life or the joint lives of spouses.
- Clients that want to allow their heirs to defer income taxes on retirement accounts they will inherit for longer than would otherwise occur.
- Clients who want to dispose of currently low return assets and acquire higher return assets without the imposition of a current income tax.
How do Charitable Trusts Work?
Charitable trusts have numerous purposes. They can be revocable or irrevocable. They can provide the donor (and the donor’s spouse) lifetime income, and provide the remaining principal at the donor’s death to a charity. OR the charity can benefit from the income every year, and the principal will revert to the donor’s heirs estate tax free in the future. We spend a lot of time thoughtfully advising clients on his or her charitable purpose, seeking to align the charitable toll with the client’s purpose.
Tax Deferred Income: A charitable trust is a special form of trust that may (or may not) be exempt from income taxes (depending upon the client’s goals). This means that property transferred to the charitable trust could be sold by the CRT without any capital gain taxes being paid. Assume a $1,000,000 asset with a basis of $200,000 and a 20% capital gain tax rate. If the owner sells the asset outright, there will be $800,000 in gain and a potential capital gain tax of $200,000 ($800,000 x .25). That means the owner has lost $160,000 of cash from the property’s increase in value. If the property is transferred to one type of charitable trust and then sold, there is no tax imposed. Assume a 10% rate of return, the CRT will earn $16,000 per year more than the owner would have earned.
Charitable Contribution Deduction: The owner of the property may receive the income over a lifetime or a period of years, not in excess of 20. At the end of that time, the property in the trust passes to the charitable remainder beneficiary. When the trust is formed, the actuarial value of the remainder interest is calculated and deductible, subject to some limitations, on the owner’s income tax return. As an example, a 65 year old transferring $1,000,000 to a 10% unitrust-CRT receives a charitable contribution deduction of $263,000. If it is not all allowed in one year, it may be deducted over a five year period. Each year, the CRT files its own income tax return.
With the political and economic climate as it is in the summer of 2008, we are not likely to see total repeal of the federal estate tax in the foreseeable future. However, both Republican and Democratic Presidential candidates support estate tax reform. Realistically,...