When many people think of estate planning, they assume it has to do with avoiding taxes and ensuring that their family heirs get as much of the estate as possible. While that is often the goal of the planning process, there are other things that may be important to Floridians when they plan their estates. For quite a few people, giving to charitable causes is a way to minimize tax consequences and to feel as if they have made a difference in areas they feel are important.
There are several ways to satisfy one's philanthropic impulses through estate planning. One was is to use a direct bequest in a will or already existing trust. This way, the organization gets a fixed amount or a percentage of the estate, and the estate or trust gets a tax write-off. However, another avenue to consider may be one of several types of charitable trusts. There are three major types of these trusts: Charitable Remainder Annuity Trusts (CRATs), Charitable Remainder Unitrusts (CRUTs), and Charitable Lead Annuity trusts (CLATs). CRATs and CRUTs operate quite similarly, with the trust paying out an annuity during some period of time (often the lifetime of the trust creator, or the lifetime of an heir) and then the remaining assets go to the designated charitable beneficiary.
The main difference between them is that CRATs are "fixed" annuities, giving a specific dollar amount, while CRUTs pay out a percentage of the trusts value, like a "variable" annuity. In either case, the creator of the trust receives a tax break when the trust is created in the estimated amount that will be going to charity.
A CLAT, on the other hand, pays the annuity to the charitable organization for a set period of time, usually the lifetime of the trust creator, with the remainder passing to the creator's beneficiaries at death. It is important to not in this case that while a tax break is given upon creation in the value given to charity during the course of the annuity term, yearly income taxes are still paid on the money going to the charity, by the trust creator.
All of this information is important, but it can also be confusing. Residents of Florida thinking of using their estate plan to give to a charitable cause may find it useful to consult with a professional to determine the method that best fits their situation.
Source: charlotte.floridaweekly.com, "Estate planning and charitable giving," Bass Forrest, May 8, 2014