Charitable Trusts: Tax Breaks for Do-Gooders -P2

Estate Tax
When the trust property eventually goes to the charity outright (at your death or the end of the payment period you specified), it's no longer in your estate -- so it isn't subject to federal estate tax. (Most people don't need to worry about estate tax, however, which is assessed only on large estates. )
Capital Gains Tax
A charitable trust lets you turn appreciated property (property that has gone up significantly in value since you acquired it) into cash without paying tax on the profit. If you simply sold the property, you would have to pay capital gains tax on your profit.
A charity usually sells any non-income-producing asset in a charitable trust and uses the proceeds to buy property that will produce income for you. But charities, unlike individuals, don't have to pay capital gains tax. So if you give the property to the trust and the charity sells it, the proceeds stay in the trust and aren't taxed.
Toni owns stock worth $300,000. She paid $20,000 for it 20 years ago. She creates a charitable trust, naming Greenpeace as the charity beneficiary, and funds her trust with her stock. Greenpeace sells the stock for $300,000 and invests the money in a mutual fund. Toni will receive income from this $300,000 for her life.
Had Toni sold the stock herself, she would have had to pay capital gains tax on her $280,000 profit. But no capital gains tax is assessed against the charity.
Receiving Income From the Trust
When you set up a charitable remainder trust, there are two basic ways to structure the payments you will receive.
Fixed Annuity
You can receive a fixed dollar amount (an annuity) each year. That way, if the trust has lower-than-expected income, you still receive the same annual income. Once you set the amount and the trust is operational, you can't change it. For instance, if you direct that the charity pay you $10,000 a year for life, you can't later say, "Oops, I forgot about inflation. How about $15,000?"