Estate Planning
Creative planning can create tax-efficient ways to support the DCLT while achieving your personal estate goals. This page provides an overview of some of the strategies to consider. Click here to learn more.
For a free consultation by a qualified estate planning attorney, be sure to contact us today.
Charitable Trust Planning: The use of a Charitable Remainder Trust (CRT), in conjunction with the sale of land to the DCLT, can be a powerful income and estate tax planning combination. A CRT is an Irrevocable Trust. You act as the Trustee, and you (and or other beneficiaries) receive an income stream from the CRT. Because DCLT receives the CRT assets at your death or a stated time period in the future, you receive a current income tax deduction. Because a CRT is considered a charitable entity, there is no income tax payable by the Trustee. If you own land that has appreciated and you wish to sell, the CRT is a great vehicle to accomplish the sale, tax free. You contribute the land to the CRT and then the Trustee sells (cannot be subject to a sale agreement already executed prior to the contribution to the CRT). The Trustee will pay no capital gains tax and all the proceeds from the sale are now used to pay an income stream to you (and any other beneficiaries). Other appreciated assets also can be used to fund a CRT.
At times, this plan also includes a life insurance component. If you are insurable, a life insurance policy that is held in an Irrevocable Trust that is not part of your taxable estate is purchased using some of the income stream received from the CRT. This life insurance benefit replaces the value of the CRT that goes to Dennis Conservation Land Trust and is income tax free and estate tax free to your beneficiaries.
There are two types of CRT: the Charitable Remainder Annuity Trust (CRAT) and the Charitable Remainder Unitrust (CRUT). The difference between the CRAT and the CRUT is how the income stream is calculated.
With the CRAT, you contribute assets to the CRAT and choose an interest rate for the payout. Every year thereafter, the income you receive is set at that interest rate and never changes. For example, if you put $100,000 into a CRAT and selected an 8% interest rate, then every year you would receive $8,000 ($100,000 x 8%). Because you receive this set amount every year (regardless of the value of the CRAT assets), the named charities bear the risk of depreciation in value.
With the CRUT, the interest rate chosen is applied to the fair market value of the assets in the CRUT at the beginning of each year. As a result, the income that you receive changes every year. For example, if you put $100,000 into a CRUT and selected an 8% interest rate, then in year one you would receive $8,000. At the beginning of the next year, the assets are re-valued. Assuming no change in value, you would apply the 8% interest rate to the CRUT value of $92,000.00 and would receive $7,360 ($92,000 x 8%). Because the CRUT distributes a changing amount every year to the non-charitable beneficiary (you and/or your beneficiaries), it is the non-charitable beneficiary who benefits from any appreciation in value of the CRUT assets and who suffers from any depreciation in value.
Planning with Qualified Plan Assets (e.g., IRAs, 401(k) plans, 403(b) plans, SEP IRAs):
When you leave your non-ROTH retirement plan assets to your beneficiaries, they must pay income tax on each required withdrawal (10-year time frame for full distribution now if the beneficiary is not your spouse or other qualified beneficiary, e.g. disabled child). In addition, the value of the plan is a taxable asset in your estate subject to the MA estate tax and perhaps a federal estate tax.
If your estate plan contemplates leaving a charitable gift to the DCLT, it is better to leave some portion of your qualified plans to the Trust since, as a 501(c)(3) charity, the Trust is exempt from income taxation. The Trust will put each $1 that is received from your qualified plan to work for conservation while your beneficiary will put less than $1 in his/her pocket.
Using a separate Charitable Beneficiary Trust or separate beneficiary designation to DCLT protects the 10-year payout requirement for your individual beneficiaries (will not be an accelerated distribution required) so that your Trust planning does not mix charitable and non-charitable beneficiaries.
