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Flexibility and heightened planning opportunities through trusts

Establishing a trust can be a sensible move for an individual or family, since a properly selected and tailored trust can be an especially effective vehicle for protecting, preserving and transferring wealth.

A charitable trust in particular can be of great utility to families with specialized needs, such as the need to minimize estate and gift taxes or, alternatively, to simply help plan optimally when contemplating income taxes.

Two types of charitable trusts in particular -- each with two beneficiaries -- might work especially well for some families. Although both have some similarities, they are often employed quite differently. They are called charitable lead trusts (CLTs) and charitable remainder trusts (CRTs), respectively.

Both trusts have charitable and noncharitable beneficiaries. As for a CLT, the so-called "lead" beneficiary -- the chosen charity -- gets what are customarily annual payments over the stated trust term, with the noncharitable beneficiary -- often a donor's children -- getting the remainder upon term expiration. A CLT can be a well-chosen vehicle for cutting back on or eliminating altogether estate and gift taxes.

A CRT, conversely, is less focused upon cutting gift and estate taxes and more centered on assisting a donor with income tax planning, especially in the case where appreciated property is involved. Unlike a CLT, the lead beneficiary is usually the donor or the donor's spouse, with the remainder going to a designated charity at the end of the trust term. This enables the donor to avoid payment of income taxes and to also get an income tax deduction for whatever the charity receives.

Trusts can be extremely flexible and creative tools for families with specialized financial needs. An estate planning attorney with proven experience in working with trusts can answer questions and help ensure that what makes the most sense is identified and duly put into place.

Source: Sterling Foundation Management, "Planning with charitable lead trusts and charitable remainder trusts," undated


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