Charitable Trusts With Income Reserve

Charitable Trusts With Income Reserve

Charitable Trusts With Income Reserve

CHARITABLE TRUSTS WITH INCOME RESERVE

Having discussed the relatively simple and common approaches to charitable and philanthropic giving, we now cometo the phase of charitable gift planning designed to give thedonor income from his assets during his lifetime.

A practical approach to making money through giving itaway is the "charitable trust with income reserve," sometimesreferred to as the "charitable life income program." The advantages of this method are:

(1)You may make a gift to a favorite charity or philanthropy;

(2)You retain the income for yourself for your life;

(3)You reduce your income tax in the year in which you

make the gift;

(4)You enjoy estate tax advantages because, having retained a life interest, the property is part of the gross estatefor purposes of calculating the marital deduction.

Learn More About Life Estate Planning

The procedure is relatively simple. Your first step is tocreate a simple charitable trust, and to transfer to the trust securities in the amount ultimately to go to the charitable beneficiary. There may be reasons why you do not want toendow the total sum in a single year, and you may makedeposits in the trust fund on an annual or other periodic basis. The trust, however, must be irrevocable if it is to qualify.

In establishing the trust, you reserve to yourself for yourlifetime the income from the trust. In this way you willcontinue to receive from the trust the same gross income asyou previously received from the securities or property,but

You will have a substantial income tax benefit for the yearin which the trust is set up and for any year in which youdeposit additional securities or properties in the trust. Theamount of the benefit will depend upon the application of the tax table set forth in Chart IX. Since you reserve a life income for yourself, the Government limits your tax deduction by thelikely return to you over the years that you are expected tolive. Chart IX shows how much of each dollar you are permitted to deduct for income tax purposes at the age when thecharitable trust is created or augmented.

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