There are numerous different things that you can do to leave behind a lasting legacy. Your family is going to come first without question, but if you are in a position to do so, you may be able to help others through acts of charitable giving.
The primary objective for most people will be personal. When you are facing your own mortality, you are are probably thinking some profound thoughts. Setting aside resources for the benefit of worthy causes and institutions can be quite enriching on a spiritual level.
At the same time, there can be tax advantages realized through acts of charitable giving. In addition to income tax deductions, there can also be estate tax implications.
There is a federal estate tax that is applicable in all 50 states. The tax carries a 40 percent maximum rate, and this can significantly reduce the positive impact that your legacy can have on your loved ones.
This tax can be levied on asset transfers that exceed $5.43 million in value.
We practice law in the state of New York, and there is a state-level estate tax in our state. This is another tax that can erode your wealth.
Charitable Lead Trusts
When you contribute assets to charitable causes, you are removing assets from your estate for tax purposes. One way that you could do this would be to convey assets into a charitable lead trust, and this could be a good choice if you want to gain estate tax efficiency.
To provide a simple explanation, you name a charitable beneficiary when you create this type of trust, and you also name a non-charitable beneficiary. You fund the trust, and you facilitate annual payments to the charitable beneficiary. The non-charitable beneficiary would assume ownership of any remainder that is left in the trust after the expiration of its term.
Since a non-charitable beneficiary could ultimately assume ownership of a remainder, the IRS adds anticipated interest to the taxable value of the trust.
The gift tax would be applicable if the non-charitable beneficiary assumes ownership of assets that may remain in the trust. If the assets in the trust performed better than the IRS tax estimate, this transfer could take place at a tax discount.
A charitable remainder trust is one possibility, but there are other ways to set aside resources for the benefit of charitable causes. If you would like to discuss your options with a licensed professional, our firm would be glad to help. We provide free, no obligation consultations, and you can contact us through the following link to set up an appointment: Smithtown NY Legacy Planning Attorneys.