Irrevocable Split-Interest Agreements: A Guide for Estate Planning
Irrevocable Split-Interest Agreements are an essential tool for estate planning. This agreement allows you to provide for your loved ones and a charity organization in a way that meets your wishes while also having significant tax benefits.
So, What is a Split-Interest Agreement?
A Split-Interest Agreement is an arrangement where the donor transfers an asset to a charity while retaining the right to receive income or use of the asset for a set number of years or for the remainder of their lifetime. Upon the donor`s passing, the asset transfers to the charitable organization. This type of agreement is “split” because it involves splitting the beneficial interests between the donor and the charity.
What`s the Benefit to an Irrevocable Split-Interest Agreement?
First and foremost, an Irrevocable Split-Interest Agreement reduces the donor`s taxable estate. When the donor makes the transfer to the charitable organization, the value of the asset is excluded from the donor`s estate. This reduces the donor`s estate tax liability, which can be substantial.
Another critical benefit of an Irrevocable Split-Interest Agreement is the ability to provide for your loved ones while also giving to a charity. By retaining the right to receive income or use of the transferred asset, the donor can continue to benefit from the asset during their lifetime, while also ensuring that a charity they care about is supported.
Types of Split-Interest Agreements
There are two primary types of Split-Interest Agreements. These are Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs).
Charitable Remainder Trusts
A Charitable Remainder Trust is an Irrevocable Split-Interest Agreement where the donor transfers an asset to a trust and retains the right to receive income from the trust for a set number of years or for the remainder of their lifetime. Upon the donor`s passing, the remaining trust assets transfer to the charitable organization. This type of agreement provides the donor with an income stream during their lifetime while also ensuring that their chosen charity receives support.
Charitable Lead Trusts
A Charitable Lead Trust is an Irrevocable Split-Interest Agreement where the donor transfers an asset to a trust and assigns the right to receive income from the trust to a charitable organization for a set number of years. Once the set number of years is complete, the remaining trust assets transfer to the donor`s chosen beneficiaries. This type of agreement provides the donor with estate tax benefits while also ensuring that their chosen charity receives support.
Conclusion
Irrevocable Split-Interest Agreements are an essential tool for estate planning. These agreements provide donors with the ability to provide for their loved ones and a charity of their choice while also having significant tax benefits. If you are considering an Irrevocable Split-Interest Agreement, it is crucial to speak with an estate planning attorney that has experience in this area to ensure that the agreement is properly structured and executed.
