Irvine Estate Planning: Charitable Trusts as California Estate Planning Instruments

Navigating California Estate Planning: What Happens to Your Bank Account After You Pass Away?

If you want to give assets and property to a charitable institution as part of your estate planning, you should consider charitable trusts. Charitable trusts are designed to be particularly useful for assets that have appreciated in value significantly since they were purchased (or will significantly increase in value). A couple of examples include artwork and real estate. Generally, the as-purchased value of the assets/property needs to exceed $100,000. A charitable trust allows the lawful tax avoidance of the capital gains tax that would otherwise be assessed against the appreciated value of the asset/property. Further, fixed or variable amounts from the trust corpus can be paid to the grantor (and/or spouse) during his or her lifetime over the life of the trust (15 to 20 years).

There are two types of charitable trusts recognized here in California — charitable remainder trusts and charitable lead trusts. They are similar in many ways. Both are irrevocable trusts — that is, once created, the trust instruments cannot be changed. Both are multi-year trusts, and the minimum initial grantor contribution to the trust is $100,000. Both types of trusts are designed to avoid capital gains taxes on the increased value of assets/property placed in the trusts. Since the instruments are trusts, the assets/property transfer without the need for probate proceedings. Both also avoid probate proceedings and fees Both provide for immediate and ongoing charitable giving tax deductions. Both are most suitable for assets that are generating cash flow. Both allow either a fixed or variable distribution to the grantor or the charity per year.

The main differences are as follows:

  • Charitable remainder trust — the main assets/property placed in the trust will be distributed to the charity (or charities) at the end of the life of the trust; during the life of the trust, portions of the trust value can be paid to the grantor and/or the grantor’s spouse and/or other named beneficiaries; excellent for an asset which has already appreciated in value

  • Charitable lead trust — the main assets/property placed in the trust will be distributed to the grantor’s family, heirs, or other designees while a fixed or variable amount from the trust is paid to the charity (or charities) during the life of the trust; excellent for an asset which is expected to significantly appreciate in value; ideally, if invested property, the property/asset reverts back to the grantor and/or heirs at a higher value than when originally placed in the trust

*Note that charitable trusts can be used as “during life” charitable vehicles. That is, a charitable trust can be created even where there is no expectation that the grantor will die before the trust term ends.

Contact Our Experienced Irvine, CA Estate Planning Attorneys

For more information, contact the Irvine, California estate planning attorneys at Guardian Litigation Group. Our Mission is to provide unparalleled Estate Planning legal services for our clients. We can be reached via our contact page or by phone at (949) 444-5474. We are located in Irvine, California.