Unmarried Couples Have New Incentives to Create Charitable Trusts

The new estate- and gift-tax laws, passed in December, offer many incentives for unmarried donors to consider charitable trusts and other approaches. Those donors had been left behind both because of the partisan wrangling over taxing the rich and the effects of the economic recession.

In particular, the new laws are a boon to same-sex couples as well as people who choose not to marry their romantic partners.

In an article for the latest issue of The Chronicle, I note that charitable remainder trusts are especially likely to increase in number this year and next. Through the trusts, donors get regular payments for their lifetimes or designate a friend or relative to get the payments. After the donor or other beneficiaries die, the charity gets whatever is left.

Such trusts are now more popular because under the law passed in December, donors can give other people up to $5-million per person tax-free in 2011 and 2012. That total dollar limit can be used to apply to gifts made in life or in a will.

Before the new laws took effect, Americans could only give a tiny portion of their wealth away in their lifetimes tax-free to another individual. That kept many donors from establishing charitable remainder trusts, because they would owe taxes on income produced by the trust.

Now, with the more generous exemptions from taxes, charitably minded donors who also want to provide an income to someone other than a spouse can do so with a remainder trust, says Laura H. Peebles, a Washington financial adviser.

“Where I am likely to see this is with a same-gender couple,” says Ms. Peebles. “One has more resources than the other and wants to assure that the other person will be supported if anything happens. Now I have a tool for people who have been clamoring to provide income support.”

But it’s not only gay couples who will likely take advantage of the new law. Any unmarried couple can benefit.

For example, a 92-year-old man and an 82-year-old woman last month gave $500,000 to the Georgia Institute of Technology to create a charitable remainder trust. The trust is providing a guaranteed income to the couple while they are alive; whey they die, Georgia Tech will receive all of the funds left in the trust.