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For Oklahomans who are comfortable, have disposable assets, want to donate to charity and get something back, one particular financial entity can bring the pleasures of supporting an institution and reaping tax benefits. The creator of a charitable trust, however, will no longer have any say over how and where the money is spent because these trusts are irrevocable, meaning the money cannot be recovered.
Setting up a charitable trust is relatively easily, although the chosen charity must be one approved by the Internal Revenue Service, which means the charity must be tax exempt. Property or assets are then donated to the trust. The charity becomes the trustee and will invest, protect and manage trust funds as it sees fit. Some portion of any income the trust accumulates will be paid back to the donor or specified designee as either annuity payments or percentage payments. These payments can be set up to last a particular time period or the rest of the donor's life. The trust ends once the donor dies; the charity then assumes ownership of all donated properties.
Charitable trusts offer three distinct federal tax advantages.
First, the contributor can take the value of the gift as an income-tax deduction spread over 5 years. The one catch is that the IRS anticipates what the donor might get back in interest and deducts that amount from the gift's value. For example, a $100,000 gift could return $50,000 in interest during the donor's lifetime, so the IRS would calculate the actual deduction at $50,000.
Second, the property will not be included in any estate tax determinations because it will go to the charity upon the donor's death.
Third, charitable trusts can turn property that is not producing income into cash without the charity having to pay capital gains taxes.
