For some clients, the thought of legacy extends beyond the confines of family. Donating time and money to community charities is one way to do that. An estate planning tool – the charitable remainder trust – allows people to donate while still retaining some important benefits.
An estate planning attorney has many estate planning strategies and tools at their disposal, including trusts. For example, a trust may be a powerful way for individuals to reach their estate planning goals. With a charitable trust, the goal is to leave money to benefit a charity while the beneficiaries enjoy an income from the trust until death.
A charitable remainder trust works as follows:
There are two basic types of charitable remainder trust, each with their own set of benefits.
Charitable Remainder Unitrust (CRUT). The payment to beneficiary is calculated as a percentage of the donated property. The payment is recalculated each year based on the value of the trust principal.
Charitable Remainder Annuity Trust (CRAT). A fixed payment is made to the beneficiary every year, regardless of the trust principal.
Settlors of remainder trusts receive multiple benefits.
Under current tax law, settlors may receive a tax deduction for the year the trust was established. In addition, capital gains taxes can be avoided in some circumstances. For example, property that would result in capital gains taxes if sold could be used to fund a charitable remainder trust. The beneficiary receives income from the property through the life of the trust but does not have to pay capital gains taxes.
Charitable remainder trusts are irrevocable. This may mean estate tax relief for the settlor since the trust assets are no longer part of the settlor’s estate. Also, trust assets may be protected from most creditor claims because the settlor no longer controls them.
Always consider the benefits and the consequences of creating and funding a trust. If you are interested in giving back to your community, a charitable trust might be right for you.
Do you question the need for attorney guidance with so many online resources? Because laws and regulations are complex, and because every person has a lot at risk, more people than ever are seeking professional guidance from an experienced, knowledgeable source. That helps explain the rapid growth of our firm. Whether you happened upon this website by accident or are one of the many referrals we receive from a nearly 15-year collection of satisfied clients, our staff can provide customized estate planning guidance for you. Call us. Our number: 1 (772) 218-0480
Written by: John Mangan, JD, MBA