With some planning, giving to charity can also provide great returns for the donor. Charitable Trusts are one way to give to charity while at the same time providing a lifetime income to the donor.

Using assets such as cash, securities or a transfer of real estate, a Charitable Trust is drafted by a qualified attorney for a donor. Once the assets are in the Trust, they can be sold without capital gains taxes and reinvested to create an annual income stream for life. When the person passes away, the remaining assets are paid out to charity of there choosing. The terrific thing about this type of Trust is the person creating the Trust will receive a charitable tax deduction today and they will continue to receive the income from the asset. And at passing, the charity benefits greatly.

An example: Bill is a 65 year-old widow who owns a farm worth $1,000,000 and would like to retire. He has one son who is already receiving other property through his will at death. Bill is charitably inclined and would like to give money to the Habitat for Humanity. In this arrangement, Bill’s attorney can create a Charitable Trust and place his farm inside the Trust. The asset is then sold and reinvested in a safe portfolio of mostly bonds and some stock. The Trust is now able to pay Bill an income annually of 5% of the Trust balance or $50,000. Part of the $50,000 income will be an income tax free return of his original investment in the farm and the rest is taxable. Bill can also receive a charitable deduction on his income tax return for the future amount the charity will receive. The amount of Bill’s charitable deduction is $609,700 based on IRS tables.

Over Bill’s remaining lifetime (say 20 years) he will have received $1,000,000 in income and charity will receive the remaining trust assets valued at $1,000,001. This is based on a 5% rate of return. The potential tax savings of the charitable gift is $182,900 if Bill’s average tax rate is 30%.

A Charitable Trust is just one way to accomplish smart giving, allowing you to continue to benefit from an asset while also planning for a charitable gift. Feel free to call the Foundation for general information, or discuss your personal situation with your attorney or financial advisor to find out if this giving tool or another is the right fit for you.

By Mike Arnold, volunteer on the Winona Community Foundation Finance/Investment Committee