J. Kelly Kennedy, Attorney/CPA, PLLC

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Attorney and CPA

Giving to charity and saving taxes through trust administration

Many Polk County residents are probably familiar with the name Mark Zuckerberg. If not, they have likely heard of the company Facebook, which Zuckerberg founded, and currently manages as its chief executive officer. Through his ownership shares in Facebook, Zuckerberg has amassed a tremendous personal fortune, worth roughly $45 billion.

Recently, Zuckerberg and his wife, Dr. Priscilla Chan, pledged that during their lifetime, they would give 99 percent of their Facebook stock to charitable causes. Given the huge sum of money involved, the announcement sparked a frenzy of media speculation and questions about the couple's motives, as well as the details of their plan to give away their Facebook shares. However, the announcement also raises some interesting points about estate planning and trust administration.

One type of trust instrument that is commonly used to accomplish charitable gifts is a revocable trust. The person who wants to make the gift can deposit any kind of assets into a revocable charitable trust, including real estate, cash or investment holdings. During their lifetime, the giver can choose to receive any income from the trust, or they can designate someone else or another charity to receive that income. When the person dies, the trust will then distribute the assets to the charitable beneficiaries. The government does not tax the assets as they pass from the trust to the charity.

Because this kind of trust is revocable, the person can take the property back from the trust in the future, if needed. However, this also means that the revocable charitable trust does not come with income tax advantages to the person who is making the gift.

Another method of giving that some people choose to use is a life estate agreement. In this kind of arrangement, the giver transfers assets to their charitable beneficiary, but keeps the right to use the asset during their lifetime. A home is a common asset that is involved in a life estate agreement.

Although hardly anyone in the world has even a substantial fraction of the assets that Zuckerberg and Chan have, many people are still interested in giving some of their estate to charitable causes. Setting up the appropriate legal mechanisms can be an essential component of ensuring that a charitable gift is as efficient as possible.

Source: The Street, "Five Charitable Giving Plans That Can Build Wealth and Reduce Taxes," John Persinos, Dec. 5, 2015

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