Planning your legacy is about more than just passing on wealth—it’s about making a meaningful impact that lasts for generations. In Beaufort County, South Carolina, where community ties and philanthropy are strong, choosing the right charitable giving strategy can be a powerful way to leave your mark.
Two of the most effective estate planning tools for this purpose are Charitable Lead Trusts (CLTs) and Charitable Remainder Trusts (CRTs). Both provide ways to support causes you care about while offering tax advantages and financial benefits. However, they work in very different ways and suit different legacy goals.
At The Nelson Law Firm, we’ll help you carry out your legacy in a way that best suits you. Here, we’ll discuss how each trust functions and which might be the best fit for you and your family in Beaufort County.
Charitable Lead Trusts (CLTs)
A Charitable Lead Trust is designed to provide income to a charity right away, while eventually passing the remaining assets to your heirs or back to you.
When you establish a CLT, you transfer assets—whether cash, stocks, real estate, or business interests—into an irrevocable trust. The trust then pays a fixed amount or a percentage of the trust’s value to your chosen charity each year, for a set number of years or the lifetime of one or more individuals.
At the end of this term, whatever is left in the trust goes to your beneficiaries, usually your children or other family members. This means that the charity benefits immediately, while your heirs receive the remainder of your assets later on.
There are two main types of CLTs: grantor and non-grantor. In a grantor CLT, you get a charitable income tax deduction upfront, but you’re responsible for paying income tax on the trust’s earnings each year. In a non-grantor CLT, the trust itself pays taxes on income, but you don’t receive an immediate tax deduction.
The Advantages of a CLT
One of the biggest advantages of a CLT is that it helps reduce your taxable estate, which can be a huge benefit if you want to pass wealth on to your heirs with minimal estate or gift taxes. This is especially relevant for families in Beaufort County who own valuable real estate or family businesses.
A CLT also allows you to commit to supporting a charity you care about in the short term while keeping the remainder for your family. If your goal is to provide ongoing support to a local nonprofit—such as the Beaufort County Humane Society or Beaufort Memorial Hospital Foundation—while still passing on your legacy, a CLT could be an ideal option.
However, it’s important to remember that a CLT is irrevocable, meaning once it’s set up, you can’t change the terms or the charity that receives income. Also, because the trust isn’t tax-exempt, either you or the trust must pay income taxes on the trust’s earnings.
The Advantages of a CRT
One of the main reasons people choose a CRT is to create a lifetime income stream while reducing immediate tax liability. This can be especially helpful if you own highly appreciated property in Beaufort County, such as real estate on Hilton Head Island, and want to convert it to income without paying capital gains tax right away.
A CRT is also tax-exempt, meaning the trust’s earnings grow without income tax until paid out. This allows your assets to potentially grow more quickly than in a taxable account.
Because you receive income during the trust’s term, a CRT can serve as a smart retirement planning tool or a way to provide for a loved one. When the trust ends, your chosen charity benefits from the remaining assets, confirming your legacy supports causes close to your heart.
Comparing the Two Trusts
The key difference between CLTs and CRTs lies in who receives income first. With a CLT, the charity receives income during the trust term, and your heirs receive the remainder. With a CRT, you or your beneficiaries receive income first, and the charity receives the remainder.
CLTs tend to be more focused on estate and gift tax reduction, as they remove the future growth of assets from your taxable estate. This is often appealing to wealthy donors who want to reduce estate taxes while supporting their favorite charities.
CRTs, on the other hand, are often used to generate income and defer capital gains tax, which can be attractive if you need a stream of income or want to sell appreciated assets without immediate tax consequences.
Both trusts require you to irrevocably give up control over the assets once the trust is established, so it’s essential to understand the long-term commitment involved.
Beaufort County and South Carolina Considerations
In South Carolina, charitable giving and estate planning benefits align closely with federal tax rules, but without a state estate or gift tax, making trusts like CLTs and CRTs especially effective for local families.
Many donors in Beaufort County fund their trusts with local assets, like real estate or business interests tied to the community. Using a CLT, for example, can allow you to donate income to a local nonprofit now—such as the Lowcountry Community Foundation—while passing the remaining value of your estate to heirs free of estate tax.
Similarly, a CRT funded with appreciated Beaufort property can generate income during your retirement and then benefit local charities afterward, confirming your legacy directly supports the community you love.
Legal and Administrative Considerations
When establishing a charitable trust, several critical elements require careful consideration to confirm the trust effectively fulfills its purpose and complies with all legal requirements. These elements are essential for both Charitable Lead Trusts (CLTs) and Charitable Remainder Trusts (CRTs), which are inherently intricate financial instruments.
Here are the key considerations:
Professional legal guidance: The attorney should be well-versed in the specific laws of your state, such as South Carolina law, to confirm that the trust documents are drafted accurately and legally sound. They’ll also be instrumental in traversing the intricate tax regulations associated with these trusts.
Selection of a trustee: Potential trustees include financial institutions like banks, reputable law firms, or even trusted individuals. The trustee's responsibilities encompass managing the trust's investments, distributing income according to the trust's terms, and confirming strict compliance with all trust provisions and legal obligations.
Irrevocability and commitment: Before committing to either type of trust, a thorough and thoughtful evaluation of your charitable intentions, the financial needs of your family, and your overall financial standing is absolutely crucial. This careful consideration will help make sure that the trust aligns perfectly with your long-term legacy goals.
By meticulously addressing these aspects, you can establish a charitable trust that effectively serves your philanthropic objectives while providing potential tax benefits and confirming the long-term stewardship of your assets.
Which Trust Is Right for You?
If your primary goal is to provide income to charity now while reducing estate taxes and passing remaining wealth to heirs, a Charitable Lead Trust may be your best choice. This is especially true if you want to make a significant gift but still preserve your family’s inheritance.
If you want income for yourself or a loved one now, want to defer capital gains tax, and are comfortable making a future charitable gift, a Charitable Remainder Trust might be a better fit.
Both Charitable Lead Trusts and Charitable Remainder Trusts offer powerful ways to support causes you care about while enjoying financial benefits. For residents of Beaufort County, these trusts provide opportunities to make an immediate or lasting difference in your community.
By working with trusted legal and financial advisors in South Carolina, you can design a legacy plan that aligns with your values, protects your family’s future, and amplifies your impact on the Lowcountry.
Contact a Reputable Attorney Today
Designing your legacy while supporting causes you care about requires careful consideration. If you’re interested in exploring how a CLT or CRT could fit into your estate plan, reach out to Aaron Nelson. The Nelson Law Firm serves clients throughout Beaufort County, South Carolina, so call today for a consultation.
