If you’re charitably inclined, it may be desirable to donate assets held in a trust. Why? Perhaps you’re not ready to let go of assets you hold individually, or the tax benefits of donating trust property would be more beneficial.
Before moving forward, it’s important to understand the differences between individual and trust donations. Additionally, it is important to know the circumstances under which donations by a trust are deductible.
Tax treatment of individual donations
Generally, you’re permitted to deduct charitable donations for income tax purposes only if you itemize. Itemized charitable deductions for cash gifts to public charities generally are limited to 50% of adjusted gross income (AGI), while cash gifts to private foundations are limited to 30% of AGI. Note that through 2025, the Tax Cuts and Jobs Act increased the limit for certain cash gifts to public charities to 60% of AGI.
Noncash donations to public charities generally are limited to 30% of AGI and 20% for donations to private foundations. If you donate appreciated long-term capital gain property to a public charity, you’re generally entitled to deduct its full fair market value. With the exception of publicly traded stock, deductions for similar donations to private foundations are limited to your cost basis in the property. Deductions for ordinary income property (including short-term capital gain property) are limited to your cost basis, regardless of the recipient.
Tax treatment of trust donations
The discussion that follows focuses on nongrantor trusts. Grantor trusts are essentially ignored for income tax purposes. However, charitable donations by such trusts are treated as if they were made directly by the grantor. Also, this article doesn’t discuss trusts that are specifically designed for charitable purposes, such as charitable remainder trusts or charitable lead trusts.
Making charitable donations from a nongrantor trust may have several advantages over individual donations. This includes the ability to claim a charitable deduction even if you don’t itemize deductions on your individual income tax return. A trust can deduct up to 100% of its gross taxable income, free of the AGI-based percentage limitations previously discussed.
In addition, trust deductions can be more valuable than individual deductions because the highest tax rates for trust income kick in at lower income levels. If you’re contemplating a charitable donation from a trust, there are a few caveats to keep in mind:
- The trust instrument must authorize charitable donations.
- The donation must be made from (traceable to) the trust’s gross taxable income. This includes donations of property acquired with such income, but not property that was contributed to the trust.
- Deductions for noncash donations by a trust generally are limited to the asset’s cost basis.
Special rules apply to trusts that own interests in partnerships, S corporations, and certain older trusts (generally, those created on or before Oct. 9, 1969).
Make the most of charitable deductions
If income limits or restrictions on itemized deductions have hampered your ability to deduct charitable donations, consider making donations from a trust. We can help you determine if this is a tax-wise option for your situation.
HoganTaylor Estate Planning Services
HoganTaylor estate planning professionals leverage their tax and business advisory expertise to help individuals accomplish goals and minimize tax burden. If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Estate Planning services, please contact Dan Bomhoff, Estate Planning Lead.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
