Charitable trusts are a way for Florida residents to help a wide variety of causes. People create charitable trusts for organizations that help people in financial need or people with physical and emotional needs. They can help fund the lively arts. Many people use trusts for educational purposes. Trusts help the settlor (the creator to the trust) direct which charities get some of their assets. They can help reduce estate taxes.
Charitable trusts whose purpose is to save on federal estate taxes are useful when the settlor’s assets are more than $11 million, a very high sum. In addition to federal estate tax benefits and gift tax benefits, some charitable trusts can help save on federal income taxes and capital gains tax.
Charitable trusts help the beneficiaries of the trust plan their budgets. They help charities have the funds to pay expenses, plan for the future, do research, and to provide help to people who benefit through the charity’s mission.
Qualifying as a Florida charitable trusts
Florida statute 736.0110 provides that a charitable organization that is specifically designated under a charitable trust to receive distributions from the trust – meets the definition of a “qualified beneficiary” if the charitable organization:
- Can receive trust principal or income
- Could receive trust principal or income when other the rights of other permissible distributions end
- Would be a permissible distribute if the trust ended on the date of termination
Trustees of pet trusts or a qualifying noncharitable purpose can acquire the rights of a “qualified beneficiary.” The Florida Attorney General can advocate on behalf of qualified beneficiaries.
Specific charitable trusts
Trusts that qualify for “charitable trust status” in Florida include:
- Charitable lead unitrust. The trust pays income to the charity. The remainder of the trust (the money paid when the trust ends) is paid to the heirs, usually free of taxes. Settlors with a lot of money and beneficiaries who don’t need the trust income use this type of trust. This kind of trust must comply with the rules of the Internal Revenue Service (IRS).
- Charitable remainder trust. Here the trust assets are paid to the charity when the settlor dies. During the settlor’s lifetime, the settlor can sell assets and not pay taxes for capital gains. The trust creator can also receive a yearly income and a tax deduction in the amount of the charitable gift. Other tax advantages may also apply.
- Charitable remainder annuity trust. Here, the settlor of the trust is paid an annual amount based on the initial value of the trust
- Charitable remainder unitrust. Here, the settlor is paid a yearly fixed percentage depending on the value of the trust assets (which can be adjusted yearly).
In both types of charitable remainder trusts, the donor creates the trust and appoints the charity to be the trustee. The trust must meet IRS rules. The charity pays the donor the yearly sum. The donor gets to spread the income tax deduction benefit over five years – using the value of the trust assets. When you die, the charity gets the balance of trust.
Charitable lead unitrusts can also pay based on changing percentages or a fixed amount.
An experienced Florida estate planning lawyer will review the benefits of each type of trust including whether charitable trusts are advantageous when interest rates or low vs. when they are high.