If you have accumulated a lot of assets, you may feel like leaving some of it to a charity. But you can give to the needy while also taking advantage of certain tax breaks that giving offers to you. If you want to make sure a charity receives some of your assets when you pass away, you can set up a charitable trust.

A charitable trust allows you to leave some or all your inheritance to the charity of your choice. But you can also save on what your estate would pay to the IRS. By using this tool, you can avoid excessive taxes for your estate.

How does a charitable trust work?

If you plan on giving a large chunk of your estate to charity, a charitable trust is one of the best ways to do that. When you set it up, the amount you want to give goes in the trust and becomes irrevocable. But depending on how you set it up, you can receive payments from the trust while you’re still alive.

Five-year income tax deduction

Once you fund the trust with assets, you can take their value and apply it to your income taxes over five years. The IRS will subtract what you will earn from the trust and let you deduct the remainder. You can save on taxes while guaranteeing a steady income.

Knocking out the capital gains tax

A charitable trust also lets you avoid expensive capital gains taxes. If you have property like a stock that has gained value, you would need to pay a tax on the increase when you sell it. But if you put it in a trust, the charity can sell it without a capital gains tax. You continue to collect your distribution until you pass away, and the charity receives the rest.

Giving to charity can offer multiple benefits

As you create your estate plan, you may feel that your assets will go to good use with a charity. But if you decide to set up a charitable trust, you can reap the tax rewards while contributing to a good cause.