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Charitable trust options to avoid estate tax

There are two types of irrevocable charitable trusts that can help protect Delaware residents and their families from estate taxes. Failing to do so can leave families in the same situation that actor James Gandolfini inadvertently did with his untimely death. Due to a lack of estate planning, most of Gandolfini's estate, which was worth around $70 million, was subject to state and federal estate tax.

A charitable lead trust may help to prevent estate tax by giving away income from assets to a charity until the estate has been reduced enough to fit within the exemption. This type of trust may be established while an individual is still alive, or an individual may put it in place with specifications for it to be established after their death. While the donor receives a federal income tax deduction for the donation, the donor also has to pay a tax on the interest income. At a certain point, the trust principal then goes to the beneficiary.

Another option is the charitable remainder unitrust. A CRUT also donates income to charity, but it allows the donor to receive income from the trust as well as a potential income beneficiary. A CRUT provides the framework for an individual to avoid capital gains tax on the profits of selling off an asset.

Trusts may also be beneficial for individuals whose estates are worth less than the amount set for the estate tax exemption. Regardless of the estate size, people may wish to consult an attorney about the use of wills and trusts and documents such as living wills, powers of attorney and advance medical directives.

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