How to use charitable taxes in California to reduce estate taxes

On Behalf of | Aug 30, 2021 | Estate planning |

Avoiding estate taxes when estate planning in California can seem complicated. The last thing you want to do is leave your family and loved ones with thousands of dollars in tax liabilities.

There are some ways that people can avoid or reduce estate taxes upon their death. One of the more popular ways of doing this is to create a charitable lead trust.

What is a charitable lead trust?

A charitable lead trust counts as a charitable giving technique that also works as a way to transfer money. When this trust is set up, a certain amount of money is put into the trust with the understanding that a percentage of it will be donated to the charity of their choice.

Upon your death, the money left in the trust will go to your children or other beneficiaries. But a certain amount of the money will also go to the charity, which makes it exempt from estate taxes.

How it actually works is a lot more complicated than that. There is a percentage that will show up on your children or beneficiaries’ tax returns that they may or may not be taxed on, but those are questions that can be talked out with a lawyer when the time comes.

How do I go about setting up a charitable lead trust?

This is considered a more advanced estate planning tool that should only be utilized after you’ve already created your will, powers of attorney, health care directives, etc.

This sort of trust must also be set up while you’re still living. It cannot usually be set up after your death.

In addition, your beneficiaries cannot pull from the trust while you and your spouse are living. The money is only transferred to your children or beneficiaries at the time of your death.

There’s a lot to take into consideration before starting a Charitable Lead Trust for your estate plan. Sometimes charitable lead trusts can end up costing you money, which is why it’s important to work with a lawyer to make sure this is set up correctly.