How Can I Benefit from a Charitable Remainder Trust?

Sometimes it takes tough economic times and natural disasters to unite and bring out the best in people. Natural disasters such as hurricanes and earthquakes have served to bring communities together and impact the nation as a whole. Americans have given generously to rebuild communities and help local residents through these difficult situations.

Many people have also responded to tragedies worldwide or have made donations to wildlife and environmental charities. And when we give, most of us simply give from the heart and do not always consider the financial implications.

In many instances, there are ways to increase your gifts. The charity can receive a more substantial gift and you can increase your tax benefits. The charitable remainder trust is a popular estate-planning strategy that could enable you to gift an appreciated property or security and retain an interest income for you and your family.

Once your gift is put in a charitable trust, you may receive a current income tax deduction. Neither party will owe taxes on this transfer or upon the appreciation of the asset. The trust, depending on the size of the gift and your adjusted gross income, will usually sell the asset and reinvest the proceeds in an income-producing investment. You can receive this income in exchange for gifting the ownership of the asset to the charity.

You will then need to decide how you would like to receive income. You can receive either a percentage of the value of the trust or a fixed amount. With a percentage allocation, your income will vary based on the current value of the trust. Some even offer a “make-up” clause. If the trust is not able to provide the designated income for one year, the shortfall will be added to the following year’s distribution.

Trusts that provide a fixed amount each year will not be able to take advantage of future growth or higher earnings of the asset, but they do offer consistent income even in a stagnating market.*

Choosing a trustee and clearly stating your intentions in the trust document and to the trustee are of vital importance. Once the trust is in place, it is an irrevocable instrument. Even if the charity does not receive any benefit for several decades, it will eventually assume ownership. In the meantime, the trustee is in charge of controlling the assets in the trust. Choose someone who knows how to handle financial matters and who will carry out your intentions.

A charitable remainder trust may allow you to make a substantial gift to charity, avoid capital gains tax, and provide regular income for you and your family.

The use of trusts involves a complex web of tax rules and regulations. You should enlist the counsel of an experienced estate-planning professional as well as a legal advisor before implementing such sophisticated strategies.

*Please note, there is a possibility that the funds in the trust can be exhausted prior to the completion of the annuity term.

This material was written and prepared by Emerald Publications.
© 2007 Emerald Publications

GE-45777 (09/08)