When you are beginning to set up an estate plan, one of the terms that may come up is a charitable remainder trust. This type of trust allows the owner to convert highly appreciated securities or real estate into income for a lifetime or for a number of years. This also allows you not to have those high capital gains taxes when the asset is sold. What happens is this: the asset that has appreciated is put into an irrevocable trust that is sold by the executor or trustee. These funds are reinvested and you or your beneficiary can now receive a monthly income for the rest of your life or for a predetermined number of years.
There are actually two different types of charitable remainder trusts. One is the unitrust. The monthly allotments that you get from this trust are a set percentage of the total value of the assets that make up the trust. This amount is revalued each year that it is active.
The other type of charitable remainder trust is called an annuity trust. Income payments are fixed and are set when the trust is created. This type of trust is the most popular one for those people who want to avoid market risks.
There are plenty of benefits to opening this kind of trust. You have a set income for life or a term of years. There is always the possibility for your assets to turn into additional income. There are huge income tax deductions that can occur. It may be able to give you a break in your estate taxes and probate costs.
An estate planning attorney can provide more information on California charitable remainder trusts so that you can make informed decisions.
Source: KQED, “Charitable Remainder Trusts,” accessed Sep. 01, 2015