Philanthropists in Michigan who want to make significant charitable contributions upon their death may want to consider setting up a charitable trust. This type of estate planning can ensure money and other assets benefit particular charities, and there are also tax incentives associated with them.
According to the Chronicle, this trust is only considered charitable if it is set up as irrevocable. This means the trust cannot be changed and any assets provided to it may only be used by the non-profit beneficiaries. Depending on the situation, one of three types of charitable trusts may be set up. These include:
- Charitable trust – the grantor deposits assets such as cash, real property, art, jewelry and securities, and the grantor can manage these assets through his or her lifetime. Income generated from the asset management is distributed to the chosen charities. The grantor should name someone to manage the trust upon death, as assets are not automatically transferred to beneficiaries.
- Charitable remainder trust – income generated from the assets is distributed to the grantor of the trust and upon his or her death the assets are transferred to the beneficiary
- Pooled charitable trust – the trust is set up and managed by the nonprofit organization. Average people can put cash or property into the trust, and income generated from the assets is given back to the grantors.
FindLaw discusses a number of tax incentives of setting up a charitable trust. One is an income tax deduction for the gift’s value can be spread out over five years. Another is that grantors do not have to pay capital gains taxes on income received from the assets in the trust. Lastly, property that is given to the trust is not included in estate tax determination.