The Charitable Trust As A Tax Smart Giving Strategy

By Jan Nelson, Trust Officer

By Jan Nelson, Trust Officer

The largest generation in history, the Baby Boomers, are aging and over the next 30 years, this will result in the largest transfer of wealth ever experienced in the USA. An estimated $30 trillion is expected to be passed on to future generations and charities. Careful planning with the assistance of your Heartland Trust Company team member, estate planning attorney and CPA will ensure that your family’s share of that wealth is passed on as intended.

Many of us regularly support our local universities, houses of worship, homeless shelters, and other non-profits by making a gift of cash; and these donations are invaluable to the charities and those they serve. However, one resource we offer our clients is to suggest “tax smart” ways individuals can give to their favorite non-profits. This may include:

  • Qualified Charitable Distributions (QCDs) from traditional IRAs for individuals 70½ and older, up to $100,000 per year.
  • Donation of appreciated non-cash assets (ex. publicly traded stock, real estate and other assets with low-cost basis and appreciated market value)
  • Bunching several years (usually three or more) of charitable contributions in one year to have ability to itemize deductions on federal tax return.
  • North Dakota residents are encouraged to take advantage of the 40% Qualified Endowment Fund Tax Credit for Individuals and Businesses which requires a minimum gift of $5,000 (credit is maximum of $10,000 per year per taxpayer or $20,000 per year for couples filing jointly, and $10,000 maximum for businesses).
  • Creation of a charitable trust provides income to family during trust term or at trust maturity; it also supports a favorite charity or charities and possible tax savings (charitable tax deduction, capital gains tax avoidance or reduction and possible estate tax savings).

Charitable trusts are irrevocable, although the donor (referred to as the Grantor) may generally retain the right to change the named charities during his/her lifetime. They may be funded with cash or non-cash assets, which generally provide the greater tax advantage. Unique assets such as grain crops, cattle and depreciated farm equipment may be a great funding source for charitable trusts. North Dakota residents may also qualify for the 40% ND Tax Credit for Planned Gifts. There are two broad categories of charitable trusts – charitable remainder trusts and charitable lead trusts.

Charitable Remainder Trusts:

  • Income beneficiaries named by the donor receive payments from the trust for a term of years or life.
  • Named charity or charities receive the remaining balance at the end of the trust term.
  • Donors generally receive a charitable tax deduction in the year the trust is created, based on the present value of the amount the charity will receive at trust maturity.

Charitable Lead Trusts:

  • Charity receives payments from the trust for a term of years.
  • At maturity, trust assets distribute to individuals named in trust.
  • This may result in a gift tax or estate tax charitable deduction to the donor, and may or may not result in income tax charitable deduction.
  • Lead Trusts are commonly used to transfer property to family at substantial gift and potential estate tax savings (for large estates), but may result in generation-skipping transfer tax.

The recently passed SECURE Act 2.0 included dramatic changes for IRA beneficiary required payouts. Under this legislation, most non-spouse beneficiaries must now take all distributions from an IRA within 10 years, which can have dramatic tax impacts for those inheriting large IRAs. One solution for substantial IRA owners is to name a charitable remainder trust as an IRA beneficiary, and then the trust can dictate the payout period to the trust beneficiary, in an effort to ease the tax burden for inheriting individuals.

Our hope is one or more of these strategies will help you support the worthy causes and non-profits that you care most about while also providing a tax benefit for you.

Contact Heartland Trust Company to receive a complimentary, confidential analysis about how any of these charitable strategies might work for you & your family.

This is not intended to be legal or tax advice; we advise the reader to contact an attorney and/or accountant for further assistance.

For individuals over 70 ½ with an Individual Retirement Account (IRA), directing their financial institution to make a Qualified Charitable Distribution (QCD) from their IRA directly to charity is likely the most tax efficient method to donate. Currently, individuals may direct up to $100,000 per year be donated to charity. At age 73, individuals are required to begin taking annual Required Minimum Distributions (RMDs) from Traditional IRAs and these distributions are taxable to the recipient

Jan Nelson, Trust OfficerThe Charitable Trust As A Tax Smart Giving Strategy
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What is My Net Worth?

You probably know what net worth means, but do you know what your net worth is? Knowing this number can help you get a better picture of your financial situation. Remember: this number represents one moment in time, as your financial health is always changing.

Simply stated, your net worth is the total of assets minus debts or liabilities. To find this number, use one of the countless online calculators or spreadsheets available. The downside of this method is you need to manually update the values. There are also apps for your phone or tablet, or software for your computer, that can track your net worth. You may even be able to link your accounts so the values are updated automatically.

Jan Nelson, Trust OfficerWhat is My Net Worth?
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What Can Heartland Trust Company Do for You?

Here at Heartland Trust Company, we are proud of the great reputation we have built in the community over the last 30 years. We know that if we do business the right way, we will be here for a long time. Our mission statement says it all: “We provide a lifelong commitment to the well-being of those we serve.”

Our reputation is everything, and that is why we choose to adopt the fiduciary standard. This means we apply the industry’s highest financial, ethical, and legal standards to the services we provide for our clients. We always act in our client’s best interest, and we would not do it any other way. We do things our own way, and we do it to benefit our clients. And even though trust is our middle name, we do much more than that.

Trust Administration
We started out as a trust company and we continue to provide these high levels of financial and ethical care that these special accounts require. We can serve as trustee, co-trustee, or agent for the trustee (usually for an individual named as trustee who would like assistance with responsibilities such as recordkeeping, asset management, and tax preparation). Types of trusts we administer include:
 Revocable Living Trusts
 Irrevocable Trusts
 Special Needs Trusts
 Charitable Trusts

Jan Nelson, Trust OfficerWhat Can Heartland Trust Company Do for You?
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Is a Charitable Trust A Good Option for You

Philanthropy is a key to the success of our region. The financial generosity of donors combined with donations of time and talents directly enrich the lives of those in need. This indirectly enriches the lives of us all. If you would like to make a gift now that will benefit both you and the charitable organization of your choice, one of the options listed below might be right for you.

Would you like to make a substantial give to a favorite charity, but hesitate because you may need those assets to support you while you are living? If so, you may want to consider a charitable remainder trust. The trust will pay taxable income to you (and your beneficiaries, if desired) for life or a term of years. The balance of the trust is then transferred to charity. Highly appreciated assets are excellent for funding charitable trusts, as the trust does not pay capital gains tax if those assets are sold and the donor uses the appreciated fair market value to determine the amount of the charitable contribution. Establishing a charitable remainder trust creates a current federal charitable contribution itemized deduction. North Dakota residents may also qualify for the ND Tax Credit for Planned Gifts. There are a number of payout options for charitable trusts:

Jan Nelson, Trust OfficerIs a Charitable Trust A Good Option for You
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2018 Year-End Individual Tax Planning Guide

The end of the year is coming soon, which means it’s time to make any changes that might affect your 2018 taxes. The material below has been prepared for informational purposes only. All decisions regarding tax implications should be made in consultation with your independent tax advisor.

Maximize/Bunch Itemized Deductions

The standard deduction has increased to $12,000 for individuals/$24,000 for joint filers. Therefore, it may be advantageous to incur several years of charitable contributions, so that combined with other permitted itemized deductions, taxpayers may exceed the standard deduction.

Jan Nelson, Trust Officer2018 Year-End Individual Tax Planning Guide
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