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​​​​© 2020 by Lara Sass & Associates, PLLC 


The information contained on this website is provided for informational purposes only and should not be construed as legal advice on any subject matter.  If you wish to discuss the topics addressed on this website, or other estate planning issues, please contact Lara Sass & Associates, PLLC.

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At Lara Sass & Associates, PLLC, we have a deep passion for, and extensive first-hand knowledge of, the not-for-profit sector.  Lara has worked with not-for-profit entities since the inception of her legal career, serving as outside counsel to numerous charitable organizations and as in-house counsel and member of the Executive Advisory Board for The SASS Foundation for Medical Research, Inc., a 501(c)(3) public charity, for over 17 years.  Lara's work at The SASS Foundation, in particular, has provided her with decades of hands-on legal expertise and, a rarity with legal professionals, real-world business experience to help non-profits run smoothly, efficiently and legally.


At Lara Sass & Associates, PLLC, we help clients create a plan for charitable giving which may include the establishment and operation of a family foundation or public charity.  In addition, we advise both public charities and private foundations about operating in compliance with applicable laws and regulations.  We offer comprehensive services to not-for-profit organizations pertaining to the following organizational and operational matters, among others:


  • Formation of not-for-profit corporations and charitable trusts

  • Preparation of state incorporation and governance documents, including Certificate of Incorporation and By-laws

  • Operational Matters

  • Tax Planning

  • Governance Structuring

  • Fundraising

  • Investments

  • Personnel Matters

  • Grant Making and Expenditure Responsibility

  • Fiduciary Obligations


Private Foundations


Many wealthy individuals set up private foundations to accomplish their charitable goals.  These foundations can provide additional benefits to the donor, including obtaining income, gift and estate tax deductions; teaching the donor's children about philanthropy and money management if they become part of the foundation's board; assuring that the donor's charitable vision will be realized; and perpetuating the donor's name in connection with charitable works.  Following the donor's death, family members can use a private foundation to support their particular charitable interests.


Private foundations generally use donated funds to make grants or gifts to other nonprofit organizations.  In this way, they help charitable, educational, religious, or other causes that help the public.


Private foundations are subject to certain restrictions and requirements.  For instance, a private foundation must give away at least 5% of the sum of its assets and income each year.  However, if the foundation earns more than 5% on its investments, then the foundation's assets can grow over time.  There are also significant limits on income tax deductions when gifts are made to a private foundation.  Generally, cash gifts are deductible up to 30% of the donor's Adjusted Gross Income.  Non-cash gifts may be deductible up to 20% of the donor's Adjusted Gross Income; but in some cases the donor's deduction is based on the smaller of the donor's income tax basis or the value of the asset given away.  In addition to these restrictions and requirements, private foundations cannot do business with their major contributors, they are subject to excise taxes and can face penalties for self-dealing, making risky investments, and for failing to distribute adequate funds to charitable endeavors, among other regulations.


Every U.S. and foreign charity that qualifies under Section 501(c)(3) of the Internal Revenue Service Code as tax-exempt is considered a private foundation unless it demonstrates to the IRS that it falls into another category.  Broadly speaking, organizations that are not “private foundations” are considered “public charities.”


Public Charities


A public charity is a charitable organization that (a) has broad public support, (b) actively functions to support another public charity, or (c) is devoted exclusively to testing for public safety.  Many public charities rely on contributions from the general public.  Cash gifts to public charities are generally deductible up to 50% of the donor's Adjusted Gross Income, while non-cash gifts are generally deductible up to 30% of the donor's Adjusted Gross Income.  In most (but not all) cases, a donor's deduction on a gift to a public charity is based on the value of the asset and is not limited to the donor's income tax basis. 


The missions of public charities range from helping the poor to easing community tensions to advancing religion, education, or science.  Some examples are churches, universities, hospitals, and medical research groups.


A public charity is either “publicly supported” (derives a substantial portion of its support from the public) or functions to “support” one or more organizations that are public charities. 




Charitable trusts allow individuals to give to charity, while providing for their family at the same time.  Using charitable trusts—on their own or in conjunction with donor-advised funds—could offer greater flexibility and control over intended charitable contributions while helping to fulfill philanthropic, estate planning and tax management goals.


A charitable trust allows a donor to set assets aside for one or more charities.  There are two different types of charitable "split interest" trusts—charitable remainder trusts (CRTs) and charitable lead trusts (CLTs).  These types of trusts "split" the assets between a charitable and noncharitable beneficiary.  Which type you choose depends on your priorities with respect to estate planning and wealth preservation, how you want the charity to receive the gift, and even the types of assets you wish to donate.


CRTs and CLTs are similar in that a portion of the assets go to the charity and a portion go to a noncharitable party of the donor’s choosing.  The key difference is when the charitable and non-charitable beneficiaries receive their payments.  With a CLT, the charity receives an income interest for a term of years or for someone's lifetime, with individuals receiving the remaining assets at the end of the trust term.  On the other hand, with a CRT, individuals receive the income interest, while one or more charities receive the remainder.  With charitable trusts, the donor can control the timing of the charitable donation, choose whether to make it in a lump-sum remainder or income stream, and decide how much their heirs can benefit from the income or remainder.


A type of charitable giving program, a donor-advised fund, can be used in conjunction with split interest trusts to easily benefit more than one charity or to preserve the ability for donors to be flexible and cost-efficient if their charitable giving priorities shift.  This strategy is implemented by directing the proceeds from a charitable trust—whether the interest payments from a CLT or the remainder from a CRT—to a donor-advised fund, rather than to a different, specified charity.  Because the donor retains privileges over how donor-advised fund assets are distributed, the donor can recommend a charity at a later date or change his or her mind about charities previously chosen.  With a donor-advised fund, the donor can also advise how the assets are invested and the timing and amount of the distributions to the recipient charities.  


Charitable Remainder Trust (CRAT and CRUT)


A charitable remainder trust is an irrevocable trust by which a donor makes a deferred charitable gift.  A charitable remainder trust may take the form of either a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT).  The donor retains the right to an annual annuity amount (a fixed dollar amount that does not change from year to year) or a unitrust payment (a fixed percentage of the value of the trust, paid each year, that can change as the value of the trust increases or decreases) for the donor’s lifetime (or the combined lifetime of the donor and his or her spouse), and the charity receives the remainder of the trust following the expiration of the income interest.  The donor receives an income tax deduction in the year the trust is established and funded, and the assets are no longer subject to estate tax upon the donor's death.  


The use of a charitable remainder trust is particularly beneficial where the donor has appreciated property, with a very low basis, which is producing little or no income.  The charitable remainder trust may sell this property free of capital gains tax and invest the proceeds in high income producing assets, thereby providing the donor with an increased income stream without reducing the investment assets through the payment of capital gains tax.


Often, a charitable remainder trust is paired with an annual exclusion gifting program.  With such a program, the donor would utilize a portion of the stream of income received from the trust to fund annual exclusion gifts to children or other family members.  Such gifts may take the form of the acquisition of a life insurance policy in an irrevocable life insurance trust, sometimes called a "wealth replacement trust" because it provides the children with funds to offset the loss of the assets passing to the charity.


Charitable Lead Trust (CLAT and CLUT)


A Charitable Lead Trust (CLT) gives a charity the right to receive funds for a fixed number of years, after which the funds pass to family members.  The charity can be a private family foundation.  The amount payable to charity can be either a fixed dollar amount each year (charitable lead annuity trust or CLAT), or a percentage of the value of the assets as redetermined each year (charitable lead unitrust or CLUT).  Usually, a CLT is used to pass assets to family members at a reduced gift tax cost, while benefitting a charity.


A CLT can be set up during the donor's lifetime, or on the donor's death.  If the CLT is set up during the donor's life as a grantor trust for income tax purposes (so the donor is taxed on the income earned by the trust each year), then the donor can claim an income tax deduction when the trust is funded, but the donor will not get an income tax deduction as distributions are made to charity.  If the trust is not set up as a grantor trust for income tax purposes, then the donor gets no income tax deduction when the trust is funded, but distributions to charity from the trust will be deductible against the trust's income.


More frequently, a CLT is set up under a revocable living trust or Will.  The decedent's estate gets an estate tax deduction for a portion of the assets going into the trust.  The amount of the deduction will depend on what kind of CLT (unitrust or annuity trust) is used, the payout rate, interest rates when the trust is funded and the length of the charitable term.  A CLT works well if the donor has assets which are likely to increase in value far faster than the IRS assumed rate of interest, or if valuation discounts can be claimed to reduce the value of the assets going into the CLT. 


Benefits of Charitable Trusts


Charitable remainder and lead trusts can preserve wealth for those with charitable intentions, because they can be a tax-efficient way to give.  Here are some of their key advantages:


  • Preserving the value of highly appreciated assets.  For those with significantly appreciated assets, including non-income-producing property, a charitable remainder trust allows the donor to take that property, sell it within the trust as tax exempt, and preserve the full fair market value of the property, rather than reduce it by large capital gains taxes. 

  • Income tax deductions.  With a CRT, the donor has a potential immediate partial income tax deduction based on the value of the eventual gift the donor is making to charity.  A CLT established during a donor’s lifetime may be designed so that the donor benefits from an up-front charitable income tax deduction in the year it is funded.  

  • Reducing estate taxes.  Generally, once a donor funds a charitable trust, these assets are out of the donor's estate for estate tax purposes.  This may not only reduce the amount of tax the donor's estate has to pay upon the donor's death, it may preserve money for the donor's heirs.  If a contribution to a CLT occurs upon the death of the donor, the donor will be eligible for an estate tax deduction for the value of the interest paid to the charity.

  • Reducing gift taxes.  If a donor makes a contribution to a non-grantor CLT during his or her lifetime, the donor may be eligible for a gift tax deduction based on the interest going to the charity.  However, if the remainder beneficiary of a CLT is not the donor, then the donor might be subject to gift tax on the value of the remainder interest.  It is important to note, however, that there are ways to structure these non-grantor CLTs that could potentially eliminate transfer taxes on the amount passing to the remainder beneficiary. 

  • Creating income from non-income-producing property.  If an individual is charitably inclined and needs income, but has significant non-income-producing property, he or she could fund a charitable remainder trust with that property.  The CRT, which is tax exempt, would sell the property, preserving the charitable remainder, and, at the same time, provide an income stream back to the donor.  Moreoever, if the individual wants to avoid taking the income until he or she is in a lower tax bracket, he or she could establish a special type of CRT that allows the donor to contribute the appreciated assets, and have the trust invest in non-income-producing property so that the donor is not receiving income from the trust until he or she is ready (e.g., in a lower-tax bracket in retirement).


If you are interested in forming a tax-exempt organization, need legal advice regarding your nonprofit organization, or want to establish a charitable remainder or lead trust, please contact Lara Sass & Associates, PLLC; we would be pleased to assist you.