Setting up a charitable trust

Who needs to be a millionaire? When their hearts are in the right place, even less-prosperous Americans can bless their favorite charities with important money -- without breaking their bank accounts.

You simply need a charitable trust to get the job done.

Attorneys and accountants are more than willing to help clients establish these legal programs. But the first step doesn't begin with financial statements. Bruce Bickel, senior vice president and managing director of the PNC Advisors' Private Foundation Management Services, asks potential philanthropists two probing questions before jumping to the practical questions:

1. What legacy do you want to leave? Do you want to be an art patron? Champion youth? Reward entrepreneurial spirit? Some goals lend themselves to charitable endeavors more than others.

2. Which values do you want to perpetuate to the next generation? You are what you emphasize, so get on a soapbox with your money to promote integrity, for instance, and society measures your family name by its integrity.

"Charitable trusts are a wonderful planning mechanism, but this is really a heart issue," Bickel says.

Once you've determined whether your desires suit a long-term dedication to charity, plunge into income figures to determine which vehicle is right for you:

Charitable Lead Trust: In this case, the charities receive the interest from your gift for a set period -- typically 10 to 20 years. At that time, whatever is left in the trust goes to a noncharitable beneficiary, such as your children or yourself.

Estate planners recommend this track for people with substantial wealth to stash assets whose value will undoubtedly appreciate in the future. This way, that increased value escapes any taxation in the donor's estate. Austin Wilkie, a partner with New York City-based Holland & Knight LLP, recommends his clients think cash or securities, however, rather than real estate and other tangible personal property. The latter, he notes, carry deeper tax complications in how they are established and invested.

Overall, this route carries fewer tax advantages than other charitable trusts because you don't surrender full responsibility.

Charitable Remainder Trust: In a mirror image of the lead trust, the remainder setup sends an annual interest payout to the donor, then hands the asset to the charity at the term's end. Your trustee can sell appreciated assets sheltered under this umbrella without paying capital gains taxes.

"It's a good middle ground -- the donor assures he has something to live on," Wilkie says.


You can choose how you want those interest payments: in a steady stream to count on (annuity trust) or ride the market fluctuations (uni-trust). Advisers aim for 5.3 percent return on investment if you choose the roller coaster version, but nothing is guaranteed, Bickel reminds.

Either route beats merely writing a check to your favorite 501(c) (3), advisers say, because you keep your fingers in the mix -- the IRS is the one to suffer setbacks. Just how much depends on individual circumstances as Uncle Sam relies on a table charting age and fair-market value of the assets on the day you set up the trust to figure the government's take.

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