Split-Interest Giving

What is Split-Interest Giving?

Split interest giving refers to a philanthropic strategy where a donor contributes to a charitable organization while retaining certain benefits from the donated assets. This approach allows donors to support a cause they care about while also receiving financial or tax benefits during their lifetime.

There are two primary forms of split interest giving:

  1. Charitable Remainder Trusts (CRTs):
    1. In this arrangement, a donor transfers assets into a trust that pays them (or designated beneficiaries) a fixed percentage or amount for a specified period. After this period, the remaining assets in the trust are distributed to the designated charity. This allows the donor to receive income from the trust while also making a future gift to charity.
  3. Charitable Lead Trusts (CLTs):
    1. In contrast to CRTs, a CLT provides income to a charity for a specified period, after which the remaining assets are transferred to the donor's heirs. This can help reduce estate taxes while supporting charitable causes.

Split interest giving can be an effective way for donors to achieve their philanthropic goals while also enjoying financial benefits, such as income during their lifetime and potential tax deductions. It is often used by individuals with significant assets who want to balance their charitable intentions with their financial needs.

Types of Charitable Remainder Trusts?

Charitable Remainder Trusts (CRTs) are estate planning tools that allow individuals to donate assets to a charity while retaining an income stream from those assets for a specified period. There are two primary types of Charitable Remainder Trusts:

1. Charitable Remainder Annuity Trust (CRAT):

  • Structure:
    • A CRAT pays a fixed dollar amount to the income beneficiary (or beneficiaries) each year, which is determined at the time the trust is established.
  • Payout:
    • The payout must be at least 5% of the initial fair market value of the assets placed in the trust.
  • Duration:
    • The trust can last for a specified number of years (up to 20) or until the death of the income beneficiary.
  • Tax Benefits:
    • Donors receive an immediate charitable income tax deduction based on the present value of the remainder interest that will go to charity.

2. Charitable Remainder Unitrust (CRUT):

  • Structure:
    • A CRUT pays a variable income to the beneficiaries, which is a percentage of the trust's assets, recalculated annually. This means the income can fluctuate based on the trust's performance.
  • Payout:
    • The payout percentage must be at least 5% of the trust's value, and it can be set at any percentage above that.
  • Duration:
    • Similar to a CRAT, a CRUT can last for a specified number of years or until the death of the income beneficiary.
  • Tax Benefits:
    • Donors also receive a charitable income tax deduction based on the present value of the remainder interest.

Additional Variations of CRTs:

  • Flip Charitable Remainder Trust:
    • This is a type of CRUT that starts as a CRAT and "flips" to a CRUT after a triggering event, such as the sale of an asset. This allows for a fixed income initially and then a variable income based on the trust's value.
  • Net Income with Makeup Charitable Remainder Unitrust (NIMCRUT):
    • This type of CRUT pays the lesser of the fixed percentage of the trust's assets or the actual income generated by the trust. If the trust income is less than the fixed percentage, the difference can be "made up" in future years when the trust generates more income.
  • Charitable Remainder Trusts with a Special Needs Provision:
    • These trusts can be structured to provide income to a beneficiary without jeopardizing their eligibility for government benefits.

Each type of Charitable Remainder Trust has its own advantages and considerations, and the choice between them depends on the donor's financial situation, income needs, and charitable goals. It's advisable to consult with a financial advisor or estate planning attorney to determine the best option for individual circumstances.

Types of Charitable Lead Trusts?

Charitable Lead Trusts (CLTs) are estate planning tools that provide income to a charitable organization for a specified period, after which the remaining assets are transferred to non-charitable beneficiaries, such as family members. There are two primary types of Charitable Lead Trusts:

1. Charitable Lead Annuity Trust (CLAT):

  • In a CLAT, the charity receives a fixed annuity payment each year, which is a predetermined amount based on the initial value of the trust assets.
  • The annuity payments are made for a specified term (e.g., a number of years or the lifetime of an individual).
  • After the term ends, the remaining assets in the trust are distributed to the non-charitable beneficiaries.
  • This type of trust can be beneficial for individuals who want to provide a predictable income stream to a charity while potentially minimizing gift and estate taxes.

2. Charitable Lead Unitrust (CLUT):

  • In a CLUT, the charity receives a percentage of the trust's value, which is revalued annually.
  • This means that the income payments to the charity can fluctuate based on the trust's performance and market conditions.
  • Like the CLAT, the payments are made for a specified term, after which the remaining assets go to non-charitable beneficiaries.
  • This type of trust can be advantageous for individuals who expect the trust assets to appreciate over time, as the charity's income can increase with the trust's value.

Both types of Charitable Lead Trusts can provide significant tax benefits, including charitable income tax deductions and potential reductions in estate and gift taxes. The choice between a CLAT and a CLUT often depends on the donor's financial goals, the desired income structure for the charity, and the anticipated growth of the trust assets.

If you need more detailed information or specific examples, feel free to ask!

Benefits of Split-Interest Giving?

Here are some of the key benefits of split-interest giving:

  1. Tax Advantages:
    1. Donors can receive significant tax benefits, including income tax deductions for the charitable portion of the gift, potential avoidance of capital gains taxes on appreciated assets, and estate tax benefits.
  3. Income Stream:
    1. Donors can retain an income stream from the asset for a specified period or for their lifetime, providing financial support while also benefiting a charitable organization.
  5. Support for Charitable Causes:
    1. Split-interest giving allows donors to support causes they care about while still maintaining some control over their assets. This can be particularly appealing for individuals who want to ensure their philanthropic goals are met.
  7. Flexibility:
    1. Donors can structure split-interest gifts in various ways to meet their financial and charitable goals. This flexibility allows for tailored solutions that fit individual circumstances.
  9. Legacy Planning:
    1. Split-interest gifts can be an effective way to leave a lasting legacy. Donors can ensure that their charitable intentions are fulfilled even after their passing, while also providing for their heirs.
  11. Diversification of Assets:
    1. By transferring assets into a split-interest arrangement, donors can diversify their investment portfolios and potentially reduce risk.
  13. Philanthropic Engagement:
    1. Split-interest giving can enhance a donor's engagement with charitable organizations, fostering a deeper connection and involvement in the causes they support.
  15. Encouragement of Charitable Giving:
    1. This type of giving can encourage more individuals to contribute to charities, as it allows them to balance their financial needs with their desire to give back to the community.
  17. Professional Management:
    1. Many split-interest arrangements, such as charitable trusts, are managed by professional financial institutions or charitable organizations, providing donors with peace of mind regarding the management of their assets.
  19. Potential for Increased Charitable Contributions:
    1. By allowing donors to retain some interest in their assets, split-interest giving can lead to larger overall contributions to charities, as donors may be more willing to give when they know they can still benefit from the asset.

Overall, split-interest giving can be a strategic way for donors to achieve their financial, philanthropic, and estate planning goals simultaneously.

Why Give With Legacy?

  1. The Legacy Family
    1. The Legacy Family is a group of independent charities and organizations that work together to help organizations, families and individuals maximize their positive impact on the world and communities around them. This family of charities enables us to solve your most complex problems.
  3. Expertise
    1. Legacy has been helping donors execute split-interest gifts for over two decades. Legacy has facilitated hundreds of millions of dollars being donated via Complex Giving vehicles. We have the knowledge and experience to make your dream a reality.
  5. Flexibility
    1. Legacy specializes in doing the custom and complex giving that most other charities cannot or will not handle. Through a combination of our concierge approach, The Legacy Family, and our expertise, you won't find a better team than us to help accomplish your dreams in a competent and compliant way.
  7. Dynasty Giving
    1. Legacy Funds can be passed down to successors generation after generation binding the parents and the children together in a chain of charitable giving. At Legacy we don't just plan for the next generation to be involved, but rather the next 10 generations or more. With no required sunset clause, your family can help make the world a better place generation after generation.

How do I Start?

Split-Interest giving requires custom tailored solutions provided by Legacy because every Donor is unique. Please reach out to discuss your specialized needs so we can make an action plan to achieve your goals.

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