Charitable Trusts in NY: How Can They Optimize Your Estate Plan?
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Charitable Trusts in NY: How Can They Optimize Your Estate Plan?

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What Role Can Charitable Trusts Play in Your New York Estate Plan?

A charitable trust is a legal vehicle that can hold assets for distribution to a charitable organization. It may also generate income or distributions for the donor or their designated beneficiaries. Strategically planning your philanthropic donations not only supports charities near to your heart but can help ensure that your loved ones receive the maximum benefit from your hard-earned assets. A New York trusts lawyer can outline the primary advantages of including charitable trusts in your estate plan. Contact our law firm today to learn more about how charitable trusts and other financial planning tools may be applied to your individual situation.

What Are the Benefits of Establishing a Charitable Trust?

If you are interested in donating assets to a charitable organization, a charitable trust may be a critical part of your overall estate plan. Although establishing a trust requires a not inconsiderable effort and certain costs upfront, the benefits often outweigh the challenges.

However, it is essential to consider all your estate planning options and aims with a trusted lawyer to devise a strategy that is best for you. A few of the main reasons why individuals choose to utilize charitable trusts are as follows.

Mitigating the Effect of the New York State Estate Tax Cliff

Individuals with high-value estates face the potential of their heirs losing a significant portion of the estate to taxes when they pass. However, through careful planning, you may be able to lessen or avoid the negative impact of the estate tax cliff. The “tax cliff” refers to a situation where the value of your estate exceeds New York’s estate tax exemption by more than five percent.

When this occurs, the entire value of your estate will be subject to taxation instead of only the amount over the exemption limit.

With potential tax rates up to 16%, going over the tax cliff can significantly decrease the wealth and legacy you leave to your loved ones and charitable organizations. Properly structured charitable trusts may be utilized to reduce the taxable value of your estate and allow you to avoid incurring extra taxes. It is crucial to consult with a knowledgeable New York estate planning lawyer to determine which charitable giving methods and recipients are best suited to your values and goals.

Directing the Use of Your Donation

Establishing a charitable trust during your lifetime allows you to set up a lasting legacy through a non-profit organization that is important to you. You may be able to designate how the funds in your trust will be used and guide your donation’s impact for years to come.

An organization that receives money from a trust can count on a steady influx of funds, allowing it to reliably support its mission and budget.

Other Tax and Estate Planning Benefits

Assets placed into irrevocable charitable trusts are generally protected from lawsuits and creditors because the assets are no longer considered personal property. For this same reason, the IRS does not include trust assets in most tax calculations for your estate. You may also receive an immediate income tax deduction for contributions to certain charitable trusts, which can substantially reduce your overall tax burden now and for the lifetime of the trust.

The features of some varieties of charitable trusts can make them a valuable tool for passing assets on to family members in the future without incurring costly capital gains or gift taxes. Other tax reduction strategies involving charitable donations and trusts may also be available depending on your situation. A skilled trusts lawyer can evaluate your unique financial circumstances and help you maximize the benefits of your charitable trust.

What Considerations Are Involved in Creating a Charitable Trust in New York?

While the benefits of a charitable trust can be significant, the process of establishing a trust is legally complex. You must enlist the assistance of a New York State attorney familiar with the state and federal laws regarding trust creation to ensure your documents comply with all necessary regulations. A knowledgeable lawyer can also help you navigate the logistics of establishing your trust.

Vital issues that must be considered during charitable trust creation include:

  • Selecting an organization: Not only should the beneficiary of your donation align with your values, but it also ought to meet the IRS’s qualification guidelines for charitable organizations to ensure your trust’s eligibility for personal and estate tax benefits.
  • Structuring the trust: Several varieties of charitable trusts exist, including charitable lead trusts (CLT), charitable remainder annuity trusts (CRAT), and charitable remainder unitrust trusts (CRUT). Each has different requirements and features and can be tailored to meet your needs. Your legal team and financial advisor can help you decide which structure best suits your philanthropic aims. 
  • Funding the trust: You must determine which assets will be placed into your trust. Certain trust structures only allow funding at the creation of the trust, while others give you the flexibility to add assets over time.
  • Maintaining the trust: A trustee must be chosen to manage the trust’s assets and its distributions to charity. The trustee has a fiduciary duty to act in the trust’s best interests. Still, selecting an individual or organization with the knowledge, capacity, and trustworthiness to uphold their commitment is crucial.

How Can Our Law Firm Assist You?

Charitable trusts are a powerful estate planning tool, but they must be implemented correctly to obtain their full benefits for yourself, your chosen charity, and your other beneficiaries. Working with a reputable, skilled law firm ensures that your trust complies with state and federal law and provides peace of mind to you and your family. Our experienced lawyers at the Law Offices of Vlad Portnoy, P.C. have over 13 years of experience helping New Yorkers prepare and execute personalized estate plans to meet their goals. To discover more about charitable trusts and other strategies to optimize your estate plan, contact our law firm today at 516-518-8586 and schedule a free consultation.

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