The Peninsula Center

for Estate and Lifelong Planning

TPC Newsletter

April 2023

Charitable Trusts:

The Gifts that Keep on Giving

Charitable Trusts can be an invaluable estate planning tool for those who are charitably inclined because you can retain the right (for yourself or others) to receive an income stream from the property gifted while still qualifying for an immediate charitable income tax deduction and reducing estate tax liability at the same time. Currently, the Estate Tax Exemption is almost $13 million; however, without intervention from Congress, the current law will sunset at the end of 2025, and the exemption will be virtually cut in half.


Though there are many different types of charitable trusts, their purposes and substance remain remarkably similar. A donor transfers an asset into the trust (i.e., a charitable gift), and receives a charitable income tax deduction on his or her federal income tax return. Per the terms of the trust, a portion of the income and/or principal of the trust is paid out annually, either to the charity (with a charitable lead trust) or to the donor, spouse, and/or other beneficiary(ies) (with a charitable remainder trust) for the term of the trust. When the trust term ends, the balance of the trust property is distributed to the remainder beneficiaries.


There are two main types of split interest trusts which are used for these purposes – the Charitable Remainder Trust (CRT) and the Charitable Lead Trust (CLT). The main difference between the two is that the primary beneficiary and remainder beneficiary are inverted depending upon which trust is used. CRTs are written such that the charity is the remainder beneficiary and some other individual or individuals are the primary beneficiaries, whilst CLTs are written such that the charity is the primary beneficiary and some other individual or individuals are the remainder beneficiaries.


The amount of the charitable deduction available to the donor is determined based on an actuarial calculation which takes into consideration the value of the property gifted to the trust, what the annual distributions will be, and how much of the trust corpus will be left over at the end of the trust term. The calculations are difficult and rely heavily on current interest rates; therefore, it is important to have a qualified estate planning attorney work with your accountant to crunch the numbers in order to maximize the benefits of the trust to you, your family, and your charitable beneficiaries.


Let’s see an example of how a CRT works. Suppose a charitably-inclined individual has an asset worth $500,000 which is highly appreciated such that liquidation and reallocation of the funds would result in significant capital gains tax liability. Suppose also that the individual wants (or needs) to retain some sort of income stream from the asset. The trust can be established for a set number of years (not exceeding 20) or for the life of the income beneficiary(ies). In our example, we will assume a trust term of twenty (20) years.


The next consideration is how much will be paid out to the income beneficiary(ies) each year during the trust term. With a charitable remainder trust, the law requires that at least 10% of the trust be left for the charity at the end of the trust term. The maximum percentage payment rate, calculated backwards, would be 7.22%. Thus, the beneficiary(ies) would receive 7.22% of the trust annually for 20 years ($36,100 per year). The donor would receive an immediate charitable income tax deduction of $50,114., the donor (or beneficiaries) will receive an estimated $722,000 from the trust.


At the end of the twenty-year period, the balance of the trust investments would be transferred out of the trust to the charity(ies) selected by the donor. The amount ultimately left for the charity will depend on how the assets performed (appreciation or depreciation), from the original deposit of $500,000 and the distributions to the non-charitable beneficiaries during the trust term. Using an estimated growth rate of 6% over the 20-year period, the charity(ies) in our example would receive over $275,000 upon termination of the trust. Thus, the end result is a win-win for the donor, beneficiaries, and charities alike.


A charitable lead trust works in the reverse, with the charity(ies) receiving payments during the trust term and the designated non-charitable beneficiaries receiving the balance of the trust assets when the trust term ends.


As you can see, these types of charitable trusts can be exceptionally powerful estate planning tools which allow donors to provide for themselves, their families, and those charitable organizations they most wish to support. Of course, there are many different types of split interest trusts, and, for the most part, they can be written to accomplish a plethora of charitable and personal goals simultaneously.

Teenagers, Technology, and You

Do you find it hard to keep up with smart phone technology as you get older? Now that smart phones have basically turned into computers in the palms of our hands, the struggle to keep up with the changing technology as we age has increased even more. This complicated technology can often lead to frustration and confusion. It shouldn't be so hard to do the basic tasks on your phone, send an email, text a picture, and forward a text message. But as even younger adults will attest, sometimes it really is! A recent news story featured on CBS News showcased a group of high school students on a mission to help their neighbors by answering some of those smart phone technology questions.

You can see the news story here. The story takes place at Brookdale Senior Living in Florida. At first, hearing the name, you might think this takes place at Brookdale located in Williamsburg. While the story does not take place in Virginia, it inspires the idea to involve those younger friends and family members when you need help understanding your smart phone. Getting an appointment at an Apple store or waiting on hold for online tech support can be frustrating. Next time you have a problem with your phone, think about who is in your circle of friends and family and reach out to them first. Sometimes our most valuable resources are closer than we think!

Recipe of the Month: Fresh Strawberry Cake

This month's recipe feature is Fresh Strawberry Cake! A slice of this cake looks like a lovely treat. If your looking for a fun dessert to feature at your next spring get together you can see the recipe here. Lots of how to tips on this one. Scroll down towards the bottom of the page for the full recipe.

Reciprocal Wills

Last month we discussed the simplest kind of estate plan for a married couple, often referred to as “reciprocal” wills. You can see the full article here.

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Helena S. Mock, Esq.

461 McLaws Circle, Suite 2
Williamsburg, VA 23185 
Phone: 757-969-1900
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