When people are estate planning a Michigan, they often need to determine how to distribute their assets following their deaths. People have many options when it comes to asset distribution. In some cases, people may choose to give their assets to family and friends. However, people may also want to give to those in need. One way to do this is through the use of a charitable trust.
A charitable trust allows a person to give assets to a charity or charities. By giving the property to the trust, income generated from that property can be used to fund charitable organizations. However, when people decide to start charitable trusts they need to understand the full legal consequences of these actions.
Not only can people distribute their assets this way, but a charitable trust can have serious effects on a person's taxes. For tax planning purposes, people should understand the benefits of a charitable trust.
There are three main ways in which a charitable trust can affect a person's taxes. One, a charitable trust can be used to sell property and avoid the capital gains tax. If property is donated to a charitable trust, the trust can sell the property and give interest payments to the original donor without the donor having to pay capital gains taxes on the sale of the property.
Additionally, since a charitable trust owns the property once it is placed in trust, that property will not be added to a person's estate when the person dies. Therefore, the person will not have to pay estate taxes on that property.
Finally, donating property to a charitable trust allows a person to spread out income tax deductions. The value of a charitable gift can be spread out as a deduction over five years.
There are many legal consequences to creating and funding a charitable trust. Michigan residents should understand these consequences as they estate plan. While this blog post only provides general information, an attorney may be able to give specific legal advice about creating charitable trusts.