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. 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.

South Dakota Charitable Remainder Trust

A South Dakota Charitable Remainder Trust (CRT) exists to support a particular charity or charitable intent. Similar to a Purpose Trust, a CRT is another powerful planning opportunity that allows individuals and families the option to generate income while still providing assets to charities.

The CRT is typically an irrevocable trust and given South Dakota’s progressive trust laws, including its strong asset protection provisions and no state income tax, the establishment of a CRT can be used to both support a grantor’s charitable causes as well as their own financial needs.

Creation of a Charitable Remainder Trust (CRT)

During the creation of a CRT, an individual (the grantor) establishes a trust and transfers assets, such as cash, securities, or real estate, into the trust. The trust then provides income to the named 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. The grantor receives a charitable deduction for the present value of the charitable remainder interest, providing potentially significant tax benefits.

Categories of Charitable Remainder Trusts (CRTs)

There are two primary categories of CRTs: Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs). The key distinction between a CRUT and a CRAT lies in the method of calculating the annual payout. While a CRAT’s payout remains a constant amount or a fixed percentage of the initial trust contribution, never altering throughout the trust term, a CRUT, on the contrary, disburses to the income beneficiary a fixed percentage multiplied by the trust’s fair market value each year for the designated trust duration.

Non-Charitable Trusts

Charitable giving through non-charitable trusts has gained prominence with the evolution of the Directed Trust. Personal non-charitable trusts are now recognized as a popular trust structure that supports effective philanthropy. The dynamics within a Directed Trust, involving beneficiaries, fiduciaries, and trustees, along with active family participation, make it a powerful alternative for charitable giving.

In this context, it is noteworthy that a charitable deduction is permissible for distributions made from non-charitable trusts to support charitable causes. However, it is imperative to incorporate either mandatory direction or discretionary power within the trust to facilitate the allocation of funds to charitable endeavors. Additionally, the utilization of Powers of Appointment (POA) plays a significant role in designating funds for charitable purposes, further enhancing the trust’s potential impact in the realm of philanthropy.

Donor Advised Fund

Combining the industry’s most sophisticated charitable trusts with a Donor Advised Fund can complement an overall wealth plan, providing asset protection and giving individuals and families unique opportunities to design their philanthropic plans for maximum benefits while making a meaningful difference to the organizations and institutions that are important to them.

To learn more, we encourage you to listen to our podcast episode with Dr. Thomas Dieters, President of Charitable Gift America, who goes into more detail on philanthropic planning, including the complexities and challenges people face, and how CGA’s services and partnership with Bridgeford Trust Company has simplified this elite level of planning.

Philanthropy involves relinquishing ownership of assets, but it doesn’t have to mean giving up control of an income stream, in some cases, for generations. To learn more about how Bridgeford Trust Company may be able to assist with your charitable trust planning needs, as well as other progressive planning opportunities under South Dakota trust law, call (605) 224-9189 or contact us online.