What is a Charitable Remainder Trust?
Who Should Consider a Charitable Remainder Trust?
A Charitable Remainder Trust is a special kind of Irrevocable Trust in which property or monetary funds will eventually be donated to charity, but the grantor or donor will either use the property or receive income from the funds while they are living.
Attorney Joseph McHugh is experienced in helping client determine if a Charitable Remainder Trust is the correct asset protection tool to help and your tax situation with this type of strategic estate planning.
Who is a candidate to take advantage of a Charitable Remainder Trust? Anyone who has assets that if sold would result in a large exposure to capital gains tax and wishes to create an income stream from these assets for their use until they die. At that time, the remaining assets in the Charitable Remainder Trust will go to the charity(ies) of their choice, or perhaps to a family foundation that may be created at that time.
What Are the Different Types of Charitable Trusts?
There are a few different kinds of charitable remainder trusts discussed below:
1. Charitable Remainder Unitrust
A Charitable Remainder Unitrust can be differentiated from others kind of these trust in two ways: 1.) A fixed amount of the trusts value will be distributed to the donor either annually or on a more recurrent basis, then 2.) At the end of the grantor’s life (or perhaps that of another) or after a certain amount of time, the remaining balance is given to charity. The trustee will establish the fair market value of the Charitable Remainder Unitrust‘s assets, while the annual withdrawal percentage is fixed between 5% and 50% of the fair market value of the assets. According to IRS formulas, it is planned that the CRUT will distribute at least 10% of the fair market value of the assets contributed to the Charitable Remainder Unitrust after the death of the grantor.
2. Charitable Remainder Annuity Trust
A Charitable Remainder Annuity Trust provides a specific dollar amount to be paid out, either annually or on a more recurrent basis until the end of the grantor’s life or a certain amount of time (not exceeding twenty years). Unlike the Charitable Remainder Unitrust, the amount paid does not change based on the value of the assets; instead, the same amount is paid out until the death of the grantor or the expiration of the trust.
3. Charitable Lead Trust
A Charitable Lead Trust is the opposite of a Charitable Remainder Unitrust or Charitable Remainder Annuity Trust; it provides a fixed amount of funds (or a percentage of the trust assets) to a charity for a specified amount of years and the remaining assets will eventually be distributed to the family members or beneficiaries of the grantor when the grantor passes. A Charitable Lead Trust is usually established to set up lifetime giving to a chosen charity or non-profit organization or for other estate planning reasons.
There are several benefits in considering establishing a Charitable Remainder Trust. Obviously, the savings of having to pay capital gains tax on the selling of real property or appreciated stock is an attractive consideration. Also, since the IRS expects that 10% of the Charitable Remainder Trust assets will ultimately go to a charity, you are allowed a current deduction for a charitable contribution off of your income taxes. This amount will be the estimated present value of the ultimate gift to charity, and it can be quite sizable, having to be carried over for several years.
The income stream mentioned can go over the grantor(s) life/lives, and that of someone else such as a child or relative. The only issue is that the calculation on what income stream you may take will be based on the youngest person’s life, which means that the monthly or annual amount available in an income stream to the grantor will be reduced more than if the younger person was not included.
The only potential con is that if you have hungry heirs expecting an inheritance, they will not receive anything. However, this can be mitigated by creating an Irrevocable Life Insurance Trust, having the Charitable Remainder Trust pay the premiums, and then having the proceeds of the insurance go to the intended beneficiaries in lieu of the Charitable Remainder Trust assets.
Attorney Joseph McHugh can provide an experienced and knowledgeable consultation regarding any charitable trust needs that you may have. After a thorough review of your needs, we will structure a personalized comprehensive plan to allow you protection and control over your charitable assets.
We are proud to be a part of the complete solution to your estate and charity gifting issues, not just the lawyers that create the legal documents. We understand the issues surrounding the asset protection and what it takes legally to meet your needs and goals, while giving you the peace of mind that your estate is at a greater level of privacy from public research.
After a thorough review of the best strategies for your family situation and our fees for the scope of work, we will structure a comprehensive Asset Protection Plan created specifically to protect your hard-earned assets.
Our Law Firm is centrally located in Burbank (Southern California); however, our Asset Protection Lawyer, Joseph McHugh serve many clients throughout the state and loves an occasional road trip to help our clients, their family and friends to finalize documents. We are very proud of the many personal and professional referrals we receive from happy clients and colleagues.
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