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Charitable Trust Planning and the South Dakota Advantage

Trust planning and charitable giving typically go hand in hand, particularly for high and ultra-high-net-worth individuals and families with philanthropic mindsets and an eye on tax mitigation. Among the strategies available, a South Dakota Charitable Remainder Trust (CRT) stands out as a powerful tool, offering both philanthropic impact and tax efficiency. Essentially, a CRT will provide these individuals and families with immediate income tax deduction, a lifetime stream of income, and a waiver of capital gains taxes owed on contributed property.

At its core, a CRT aligns assets with charitable intent. Similar to a Purpose Trust which does not name a specific remainder person, a CRT is another effective planning tool that allows individuals and families the option to generate income while still supporting a particular charity or “purpose.” South Dakota’s progressive trust laws enhance this planning opportunity by blending strong asset protection provisionsprivacy, and the absence of state income tax, allowing a grantor’s charitable causes to seamlessly intertwine with their financial goals while maintaining direction and control through the use of directed trusts and trust protectors.

Creating a Charitable Remainder Trust (CRT)

The creation of a CRT involves an individual (the grantor) establishing an irrevocable trust and transferring assets, such as cash, securities, or real estate, into the trust. The trust yields income to a designated beneficiary (often the grantor or another individual) for a specified period, which can be a fixed number of years or the lifetime of the beneficiary. After the income period, the remaining assets in the trust go to a charitable organization or foundation, designated at the time of the trust creation.

Unlocking Tax Benefits Through Charitable Deductions

One of the notable advantages of a CRT lies in the grantor receiving a charitable deduction for the present value of the charitable remainder interest. This not only aligns with philanthropic goals but also presents a strategic approach to tax planning, potentially yielding significant tax benefits.

Understanding CRATs and CRUTs

Distinguishing between Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs) unveils nuanced options for tailoring strategies. While a CRAT offers a constant payout, maintaining a fixed percentage of the initial trust contribution throughout the trust term, a CRUT adapts by disbursing to the income beneficiary a fixed percentage multiplied by the trust’s fair market value each year for the designated trust duration. Understanding these categories empowers practitioners to tailor solutions that suit the unique needs of their clients.

Bridgeford Trust Company can assist in creating optimal charitable giving strategies that put direction and control into the hands of settlors through the use of powerful modern trust law, bringing asset protection and privacy while offering significant tax benefits. For more information, we encourage you to contact Bridgeford Trust Company’s team at (605) 224-9189 or online.

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McKonly & Asbury is able to offer an extension of trust and fiduciary services to our clients and friends of the firm through our partnership with Bridgeford Trust Company. As a fully independent trust company chartered in South Dakota, Bridgeford Trust Company provides conflict free and innovative fiduciary services and progressive U.S. modern trust law solutions around asset protection, privacy, and tax planning to domestic and international families across the country and around the world.

You can learn more about Bridgeford Trust Company and the South Dakota Advantage at www.bridgefordtrust.com.

About the Author

McKonly & Asbury

McKonly & Asbury is a Certified Public Accounting Firm serving companies across Pennsylvania including Camp Hill, Lancaster, Bloomsburg, and Philadelphia. We serve the needs of affordable housing, construction, family-owned businesses, healthcare, manufacturing and distribution, and nonprofit industries. We also assist service organizations with the full suite of SOC services (including SOC 2 reports), ERTC claims, internal audits, SOX compliance, and employee benefit plan audits.

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