If you wish to leave a legacy in your estate to a charitable institution, there are estate planning tools that will allow you to make a substantial gift of your estate and provide significant tax benefits during your life. A charitable remainder trust can greatly benefit a philanthropically-minded person, but it is important to understand how this type of trust works and whether it is the right option for you.
What is a Charitable Remainder Trust?
A charitable remainder trust is a trust set up to hold property that will be donated to a charitable organization upon your passing. In order to qualify, the organization must be a registered 501(c)(3) and approved by the IRS. The charity serves as the trustee and manages the contents of the trust even while you are still alive. The trustee pays you, or a designated beneficiary, a portion of the trust proceeds for a certain period of time determined by you when the trust is set up, and at your death the property of the trust is transferred to the charity.
Benefits of a Charitable Remainder Trust
The main benefit of a charitable remainder trust is the income and property you are gifting to the charity of your choice. Not only does the charity benefit from a gift at your passing but placing the property in a charitable remainder trust allows the organization to begin benefitting from the property while you are still alive.
Another benefit to charitable remainder trusts comes in significant tax benefits for the creator of the trust. On your federal taxes, you are allowed to take an income tax deduction, spread over five years, for the value of the property placed into the trust. However, any proceeds given back to you from the trust are deducted from this amount.
In addition, the estate tax benefits of a charitable remainder trust are substantial. The property in a charitable remainder trust immediately goes to the organization at your death, eliminating it from your estate and not making it subject to federal estate taxes. This has the potential to save your heirs thousands, if not millions, in additional estate taxes after your passing.
Finally, you can also benefit from capital gains tax by turning appreciated property into cash. This occurs when the charity, as trustee, sells any non-income producing property in the trust and uses the proceeds to buy income-producing property. Because charities are not charged for capital gains tax, the proceeds from the sale are not taxed and income produced from the sale is still distributed to you. An experienced trusts and estates attorney can review the property you are considering placing in trust and provide guidance on whether a charitable remainder trust is best for you.
Contact a Trusts and Estates Attorney Now
Christopher B. Johnson, located in Pasadena, California, has years of experience in all aspects of estate planning, and works with clients from all walks of life to create estate planning tools that reflect their needs and those of their beneficiaries. To request an immediate consultation, contact him today at (877) 755-9178.