Charitable Remainder Trust - Having Your Cake & Eating It Too
Most people who take the time to plan their estate already have a strong sense of family and community and want to leave gifts to their favorite charities. Many estate planning attorneys are familiar with charitable planning which is important because of the complex nature of the charitable giving provisions of the Internal Revenue Code.
A Fundamental Aspect
Charitable giving has always been a fundamental aspect of estate planning. Most people who plan have a strong sense of family and community and are therefore inclined to make charitable gifts a part of an overall estate plan.
Many estate planning attorneys have a good deal of knowledge about charitable planning. This knowledge is extremely important given the complex nature of the charitable giving provisions of the Internal Revenue Code.
A Complexity of Issues
Charitable planning is not an area that should be approached lightly. There are a myriad of issues that must be considered, including control; income, gift, and estate tax ramifications; current finances; future income and principal needs; the extent of your charitable inclination; and the types of property you own.
The simplest way to give to a charity is by making an outright gift. Outright gifts can be made either during a person's lifetime or at death. Donors of charitable gifts generally receive tax benefits. The availability and amount of those benefits depend on several factors, and the charitable gift must be properly structured to maximize the tax advantages.
Q. Can I actually "make money" by giving to charity?
A. If you have any charitable interest to help, for example, the church you attend, the school or college from which you or your children graduated, or the hospital where loved ones have been cared for- then you can "profit" from the pleasure you'll derive by helping a charitable organization you believe in to carry out its worthwhile mission.
Q. I would like to make a charitable contribution, but I do not have the financial means available to me. Are there any alternatives?
A. Outright gifts during life can be made only by persons who can afford to do so. However, charitable giving can include split-interest trusts. These are special trusts which provide both a benefit to a charity and a benefit to a "non-charity." This non-charity is generally the donor and the donor's family.
Split-interest trusts have gained popularity because they can satisfy personal financial needs as well as philanthropic desires. The most commonly used split-interest trust is the charitable remainder trust. A less frequently used split-interest trust is the charitable lead trust.
What Is A CRT?
A charitable remainder trust (CRT) is an irrevocable trust created for the purpose of holding assets given to the trust by a donor during the donor's lifetime or upon the donor's death.
A charitable remainder trust is a split interest trust. Its donated assets are shared the charity and the other beneficiaries. Typically, a CRT is designed to pay income to the trust's beneficiaries who are not the charity, usually the donor and the donor's spouse, for life or for a term of years. At their death or the designated term of years, the trust assets are paid to (or held for) qualified charitable beneficiaries.
At least 5 % of the trusts assets must be paid as income each year. There is no limit as to the number or type of income beneficiaries (individuals, corporations, trusts, etc.), except that at least one income beneficiary must be a taxable entity.
A CRT can continue for the lifetimes of the persons selected as income beneficiaries or for a term of up to 20 years. When the last income beneficiary dies or the term of years expires, all assets remaining in the trust must be distributed to one or more charities, called charitable remaindermen.
In this way the donated assets may provide a steady income at reduced tax rate for you as the donor/beneficiary and ultimately benefit your chosen charities as well. You will truly have your cake and eat it too!
Related Tags: charity, planning, estate, assets
Visit http://www.StevenAllen.com for tips and tools on Wealth Preservation. You can also subscribe to his monthly newsletter Secrets to Wealth Preservation. Steven W. Allen has been an Estate Planning attorney for over 30 years. He has authored four books including You Can't Take It With You...So How Will You Leave It Behind?. Download a free chapter at EstatePlanningDr.com
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