What's the advantage of setting up a charitable trust?
Establishing a trust enables you to balance two interests – charitable giving and income for you or your heirs.  It also presents significant benefits for income tax, estate tax and capital gains tax.

What's the difference between a charitable lead trust and a charitable remainder trust?
A charitable lead trust is one in which money is paid first to a charity for a specified amount of time.  At the end of the trust period, the balance of the trust goes to a designated beneficiary, typically the family of the trust creator.  A charitable remainder trust reverses that order, paying a beneficiary first.  At the time of the beneficiary's death, or at the end of a specified period of time, the remainder of the trust goes to charity.

When is a charitable lead trust more suitable?
If you seek to give to a charity but still wish to leave an estate to your heirs, you should consider a charitable lead trust.  You can accomplish your giving objectives, while potentially increasing what could be passed on to your heirs at a reduced or eliminated estate tax cost.

Is a charitable remainder trust more suitable?
If it's important for you to take care of your financial needs or those of others first – and donate funds to charity later – then a charitable remainder trust would be a good vehicle for you.

Can you give me an example of how a charitable remainder trust (the most common type of charitable trust) works?

• Suppose Luke has $1 million in publicly traded stock in which he has a cost basis of $200,000.  Through a dividend yield of 2 percent, this stock provides Luke with an annual income of $20,000 before taxes.  In order for Luke to achieve a higher income from this investment, he can either (a) sell the stock and reinvest or (b) contribute the stock to a charitable remainder trust, which will make payments to Luke over a specified period of time.
   
• Suppose Luke chooses to sell the stock and reinvest the proceeds. He will owe long-term capital gain tax of $120,000 ($1 million - $200,000 x 15%) plus any applicable state taxes.  By investing the net proceeds of $880,000 (assuming no state tax) and drawing out 7 percent per year, Luke will have an annual income of $61,600 before taxes.
   
• By contrast, if Luke contributes the stock to a charitable remainder trust, he receives an income tax deduction in the year of the gift.  The trust sells the stock without incurring any capital gain taxes, and Luke draws an annual income of 7 percent of $1 million $70,000.  Best of all, Luke gets to support his charitable giving goals.
   
• By contributing the stock to a charitable remainder trust, Luke not only makes a major gift to charity.  He also receives about 14 percent more income than if he had sold the stock himself.

What's the difference between a unitrust and an annuity trust?
The difference lies in the amount of the payments from the trust.  With a unitrust, the payments are based on a fixed percentage of the value of the trust – but the principal of the trust is revalued each year.  An annuity trust pays out a fixed amount – it never changes, regardless of whether the trust value goes up or down.

How do I set up a trust?
Because a trust is a legal document, you must have objective, independent legal counsel to create and fund a trust.  HCF will work with you and your legal counsel to establish your charitable trust.

What are the best assets to use in setting up a trust?
The best assets to use are highly appreciated assets, such as stock or real estate, in which the giver has a low cost basis.