Many wealthy people often set up charities and foundations in their own names or the names of someone they love.
Why do they do this? Well, the short answer is, because they want to benefit the community. But there is a secondary benefit they derive as well, and that is in the form of tax benefits.
So how do these charities, often organized in the form of a charitable trust, actually work?
To set up a charitable remainder trust, you must first set up a trust and transfer to that trust all the property that you want to donate to charity.
The charity that you choose must be approved by the Internal Revenue Service, which generally means that the charity must be exempt from taxes.
The charity will serve as the trustee of the charitable remainder trust and will be charged with the duty of investing, protecting and managing the trust funds.
The charity will pay you, or someone you have named, a portion of the income that the trust funds accumulates.
These payments will last for a set number of years, or for the remainder of your life, depending upon how you drew the documents up.
The trust will end at the time of your death and the property that you donated will go to the charity.
In other words, you get to give yourself a salary from your own money that is not taxed while you are alive. And because that money does not count towards your total net worth it also reduces what tax you pay on your other assets as well.
As a charitable trust is a favorite estate planning device because it continues to exist after your passing, it is best to consult with a local attorney when consider a New York charitable trust, or even if you are simply trying to find out why do people set up charitable trusts.