LEGACY PLANNING SERIES: CHARITABLE SPLIT INTEREST TRUST
April 11, 2024
Split Interest Gifts to a Charity, such as the RAF
As the name implies, a split interest gift involves two or more parties. One is the donor, the second is a tax-exempt 501(c)3 charity like the RAF.
This is an irrevocable gift of an asset – typically a highly appreciated, yet previously untaxed one – to a special trust or charitable gift annuity. The transfer and tax deduction is generally based on the fair market value of the asset (per the terms of each agreement), rather than an amount reduced by long term capital gain taxes.
A retirement income stream is paid to you or a named beneficiary for as long as your lifetime, while the remainder of the asset goes to the RAF at your passing. The income tax deduction you receive due to the gift may help reduce your annual income taxes for a number of years in the future.
What assets may be donated to this Charitable Split Interest Trust?
- Cash
- Publicly traded securities
- Some types of closely held business interests (Not Sub-S stock)
- Real Estate
- Personal property – Aircraft, RV’s, etc.
KEY BENEFITS
- Preserves the value of highly appreciated assets:
For those with significantly appreciated long term assets, including non-income producing property, you contribute that property to the trust and, when the trust sells it, it is exempt from tax. By donating assets in-kind to the trust, you preserve their full fair market value rather than a reduction by capital gain taxes. This allows for more income for you and the RAF. - Income tax deduction:
The trust gives you the potential to enjoy a partial income tax deduction when you fund it, and the remainder is distributed to the RAF. - Tax exemption:
The trust’s investment income is exempt from tax. This makes the trust a good option for asset divestment, and provides a larger income stream and remainder interest for the RAF.
Think of it as a Wealth Replacement Trust – The tax savings and potential increased retirement income flow could facilitate an insured wealth replacement trust for your heirs
NET RESULTS of the Charitable Split Interest Trust:
Capital gain tax savings, increased retirement income cashflow, a legacy gift to the RAF, and your heirs receive a tax-free bequest at your passing.
Submitted May 12, 2024
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