A charitable remainder trust can allow you to achieve philanthropic goals and obtain valuable tax breaks, while retaining income from your investments. Charitable remainder trusts can be a powerful tax management tool, valuable both for providing you with reliable income during your lifetime and also for meeting your estate planning goals.
Clarity Legal Group® can provide assistance in determining if a charitable remainder trust is a good option for you. If creating a charitable remainder trust makes sense for you and your family, we can assist with the trust creation process. We can answer questions you may have about charitable remainder trusts, including:
- What is a charitable remainder trust?
- Should I create a charitable remainder trust?
- How can your firm help me?
What is a Charitable Remainder Trust?
A charitable remainder trust is a specific type of trust that is used to make an immediate, tax-deductible gift to a qualified charity of your choice, while providing you or a person of your choosing with income for a period of years or for the lifetime of the income beneficiary. You designate when the trust will terminate at the time it is established.
A charitable remainder trust creates what is known as a split interest. One interest is that of the charity or charities that you designate. These charities receive the assets of the trust upon the trust’s termination (a period of years, usually 20 years, or the life of the income beneficiary). This is a beneficial remainder interest. The value of your charitable donation for tax purposes is based upon the anticipated remainder value of those assets at the time your gift is made to the charitable trust. The IRS has specific guidelines for calculating the remainder value. Consequently, you (the donor) can contribute assets to a trust and take a charitable income tax deduction at the time the assets are contributed to the trust, while still having access to income from those assets.
The second interest is that of the income beneficiary, who receives an income stream during the term of the trust. Again, the income beneficiary can be the person who made the gift that created the trust, or a person of his or her choosing.
Charitable remainder trusts can take two different forms: a charitable remainder annuity trust, which does not allow you to make additional contributions and which distributes a fixed annuity amount, or a charitable remainder unitrust which allows additional contributions to be made and which distributes a fixed percent of money based on the value of the trust assets. If you opt for the second type of charitable remainder trust, the assets are revalued annually in order to determine the amount of distributions.
Both types of charitable remainder trusts mandate that a part of the income or principal must be distributed first to the non-charitable beneficiary and then, at the end of the term or the end of the specified lifetime, the remainder of the assets must be distributed to the charitable beneficiary or beneficiaries. Contributions made to either type of charitable remainder trust are irrevocable contributions.
Should I Create a Charitable Remainder Trust?
You may wish to create a charitable remainder trust if you want to take a tax deduction for assets that you plan to give to a charitable organization and if you want to ensure the assets first provide a steady stream of income for you or someone you love, either for the rest of a lifetime or for a designated term of years.
Charitable remainder trusts can be helpful in retirement planning because you can ensure that you have a set amount of money coming in from the trust that you have created. They can be a helpful estate planning and asset protection tool because of the tax benefits associated with the creation of this type of trust. But, they will only work for you if you wish to leave a substantial amount of money to some philanthropic endeavor.
You must name a specific qualified charity or charities to receive the remainder of the trust assets upon termination of the trust. If you do not wish to give money to a charitable organization, then a charitable remainder trust is not the right option for you.
How can Clarity Legal Group® Help Me?
Clarity Legal Group® can assist you in understanding how charitable remainder trusts work and can assist you in creating a legally valid trust if this is the right legal tool for you to use to secure an income and to provide for a charity you care about and want to support. We can also discuss other options for estate planning and charitable giving.
To find out more about how our legal team can help you, give us a call at 919-484-0012.