Albuquerque Charitable Trust Lawyer

If you are looking to donate to charity while supporting yourself or loved ones in a tax-advantaged way, charitable trusts can be the perfect gifting vehicle.

Depending on the structure you decide upon, creating a charitable trust in Albuquerque can allow you to take a large one-time income deduction, defer taxes on realized gains, or significantly reduce estate and gift taxes. You have many choices available, and the one that works best should reflect your unique portfolio as well as your primary goals for forming trust.

An Albuquerque charitable trust lawyer can go over all of your options with respect to your finances and the risks or opportunities you anticipate in the future. New Mexico Financial & Family Law has helped many individuals and families in your position determine the best path forward using a comprehensive charitable trust strategy.

We can also incorporate your trust within a larger estate plan, ensuring you have all the important factors in view while you seek to establish a lasting legacy.

Get started with Albuquerque charitable trust planning during a no-obligation consultation and estate plan review when you call (505) 503-1637 or contact us online to schedule your appointment today.

Why It’s Important to Work With a Reputable Albuquerque Charitable Trust Attorney

Creating a charitable trust in Albuquerque can lead to some significant tax-saving advantages along with a much-appreciated donation to the organization of your choice. However, to achieve these benefits, the trust has to be structured in the proper way.

The trust creator (called a grantor, settlor, or trustor) also has to be certain that they are choosing the optimal trust for their needs and their unique goals.

Working with an experienced Albuquerque charitable trust attorney is, therefore, essential. They will help you ensure that all your legal and tax obligations are covered and that the trust is built to last.

Since you will have many options for creating a charitable trust at your disposal — all of which we will cover momentarily — it is also critical for you to work with an Albuquerque law firm that is able to clearly explain which choices might work best for your needs.

When you come to your consultation appointment at New Mexico Financial & Family Law, we can help you get started on your journey toward creating a charitable trust. Our knowledgeable and experienced Albuquerque charitable trust attorneys are ready to help you accomplish the following important tasks:

• Deciding on a trust structure, such as whether to use a charitable lead trust vs a charitable remainder trust
• Making other vital decisions, such as whether to designate your charitable trust with grantor vs non-grantor status
• Helping you settle on an ideal payment structure when deciding between a charitable annuity trust or unitrust, including the pros and cons of each with reference to whether the initial (non-remainder) distributions go to a charitable or non-charitable beneficiary
• Optimizing the assets used to fund the trust, with respect to the assets’ current total estimated value, their projected future value, and their potential tax implications
• Drafting a trust instrument that includes all of the legal language, rules, protections, and powers needed for you to feel confident in its ability to produce the desired outcomes
• Selecting a trustee you can rely upon (or whether to designate yourself as trustee) along with contingency plans if your initial choice is unable to continue
• Reviewing and selecting the perfect charitable cause(s) to donate to
• Making arrangements for non-charitable beneficiaries, including what will happen in the event you die before the trust term expires
• Planning for other contingencies, such as what happens in the event of economic disruption or what happens if your first choice in charitable recipient doesn’t pan out
• Supporting you throughout the trust creation process and beyond, with the ability to answer questions and provide guidance any time you need it

Book your appointment today to get these services and many more. Our goal is to help you feel certain that you can leave behind a legacy that can substantially benefit the causes and people you care about most.

Deciding Between Your Two Major Options When Creating an Albuquerque Charitable Trust: Lead Trust vs. Remainder Trust

There are two major types of charitable trusts that you can create in Albuquerque:

• Charitable lead trust
• Charitable remainder trust

Both follow the main structure of how trusts work, generally:

• A grantor transfers some of their assets into the trust. These assets can include cash; accounts (savings, checking, money market, CDs, etc.); securities (stocks, bonds, ETFs, mutual funds, etc); real property; personal property; life insurance policies; and certain types of closely held business equity or debt
• A trustee assumes control of the assets. The trustee is responsible for the assets’ investment performance while ensuring that lead payments go to their intended beneficiary. Note that with certain charitable lead or remainder trusts, the grantor has the option to serve as their own trustee
• A beneficiary receives payments from the trust on a regular basis. If there is any remainder balance when the trust ends, beneficiaries will divide it amongst themselves. Charitable trusts have both types of beneficiaries; the order in which a charitable vs. non-charitable beneficiary receives their distributions depends on whether it is a lead vs. remainder trust

Importantly: both charitable lead and charitable remainder trusts must be irrevocable trusts. Once these trusts are formed, they cannot be easily dissolved, and the grantor will likely not be able to recover their assets.

How a Charitable Lead Trust Works

Once a charitable lead trust is funded, it begins paying out regular distributions to a charitable beneficiary. These distributions can be a set payment amount (charitable lead annuity trust) or a set percentage of the trust’s total value (charitable lead unitrust).

Payments to the charitable organization continue for a set term. This term can be a number of years, or it can be set to the lifetime of a designated individual, including the grantor.

After the term has ended, the remainder balance in the trust is distributed to non-charitable beneficiaries. If the grantor is the sole beneficiary of the remainder, it is referred to as a reversionary trust.

Grantor vs. Non-Grantor Charitable Lead Trust

A grantor charitable lead trust allows the grantor to take a one-time partial income deduction for the total amount of money they will donate to the trust. This deduction must be taken for the year that the trust is formed.

The grantor then reports all income generated within the trust — such as from dividends paying out or stocks being traded — as their own.

If the charitable lead trust is formed as a non-grantor trust, then the grantor is not allowed to take an income tax deduction from the assets donated to the trust. Instead, the trust itself can take an unlimited deduction on its income each year, using the charitable distributions paid out that year.

Any excess income not paid to the charitable beneficiary is taxed as trust income.

To be a non-grantor trust, the remainder balance of the charitable lead trust cannot exceed 5% of its initial funding value. The grantor also cannot have any administrative power over the trust’s management.

Because of this requirement, grantors and their close family members are usually discouraged from serving as the trustee, and they should not have other privileges stemming from the trust.

How a Charitable Remainder Trust Works

A charitable remainder trust reverses the order of beneficiaries compared to a charitable lead trust: non-charitable beneficiaries receive initial distribution payments, and then the charitable cause receives the remainder balance.

Like a charitable lead trust, the initial payments made can be of a set value (annuity trust) or a set percentage of the trust’s current total portfolio value (unitrust).

Unlike charitable lead trusts, a charitable remainder trust does not have a grantor or non-grantor designation. Instead, they are established as their own tax-exempt entity. This status gives them uniquely beneficial characteristics.

For one, any income generated within the trust is tax-deferred until it is withdrawn in the form of a distribution. Grantors can, therefore, defer taxes on the sale proceeds of a high-value asset, potentially for years at a time.

A grantor is also able to deduct the estimated future value of the remainder interest from their income (or estate value if they are deceased) for the year in which the trust is funded.

Rules Governing Distributions for Charitable Remainder Trusts

Unlike a charitable lead trust, a charitable remainder trust’s non-charitable beneficiary payments have to satisfy certain rules:

• The payments must be given to at least one beneficiary annually
• The payments must be at least 5% — but not greater than 50% — of the trust’s initial asset value

Additionally, the trust has to have a high likelihood of preserving at least 10% of its initial value for the remainder payment to charity. And if, at any point in time, there is a greater-than-5% risk that the principal value of the trust will be exhausted before it can pay its remainder to a charitable cause, then the trust automatically terminates.

Any current remainder is then immediately distributed to the charity.

Pros and Cons of Each Type of Albuquerque Charitable Trust: Lead vs. Remainder

As you can see above, while they have many similarities, there are quite a few striking differences between how lead vs. remainder charitable trusts operate. Accordingly, there are advantages and disadvantages worth considering for each.

Charitable Lead Trust Pros

• Provides a guaranteed payment to a charitable cause
• Can take advantage of a low-interest environment (as determined by the current IRS 7520 rate) to potentially underestimate the value of the remainder, allowing beneficiaries to claim the excess value tax-free; this quality makes the lead trust option perfect for certain highly appreciable assets
• Can provide a sizeable one-time income tax deduction to offset high income (including proceeds from the sale of certain assets) for the year it is funded
• Allows the decision between grantor vs. non-grantor trust to reduce trust income taxes (grantor trust) or offset taxes for high-income-generating assets (non-grantor)

Charitable Lead Trust Cons

• Trust is not tax-exempt as a whole
• Can force hard decisions as to whether to report trust income on personal taxes (grantor trust) or to possibly pay the higher trust income tax rate (non-grantor trust)
• The charitable beneficiary is “locked in” once the trust is established, and it cannot be changed in most circumstances
• The remainder value can be unpredictable, while the charitable lead payments are guaranteed

Charitable Remainder Trust Pros

• Provides a reliable income source to the beneficiaries, which can include the grantor; payments to other beneficiaries can continue after the grantor’s death
• Can defer capital gains and other taxes for years at a time, making this trust perfect for assets likely to generate substantial income or capital gains
• Provides an immediate partial income tax deduction on the estimated value of the remainder, making it perfect for high-interest environments since the calculation will likely overestimate the value of the remainder balance
• Possibility to change the charitable beneficiary after the trust has been created
• Taxes are only paid on distributions, not income held within the trust
• Can be set up as a combination with another type of irrevocable trust, such as a bypass trust, Crummey trust, or blind trust

Charitable Remainder Trust Cons

• Impossible to change the initial distribution amounts to non-charitable beneficiaries; this means only the charity can benefit from a windfall if assets dramatically increase in value beyond initial expectations
• Fixed income amounts or percentages might poorly reflect the rate of inflation
• No option for grantor to claim income as their own, forcing non-charitable beneficiaries to foot the tax bill on all distributions they receive
• Determining tax rates can be complicated since they are based on the actual earnings of the trust, with carryover to subsequent years if income isn’t fully distributed in a given year; income with the higher tax rate is also taxed first, albeit on a pro-rata basis across all beneficiaries

Make the Best Decision for Your Legacy With an Albuquerque Charitable Trust Law Firm

New Mexico Financial & Family Law wants to help you contribute to a brighter future for your loved ones as well as to a charitable cause you care deeply about. We can help you decide on the best choice among your available options by considering your future tax and estate concerns alongside your overall objectives — for this life and the next.

Get started planning the perfect Albuquerque trust for your goals when you call (505) 503-1637 or contact us online to schedule a confidential, no-risk consultation today.