A charitable remainder trust is an excellent option for those wishing to make charitable donations while selling assets that have appreciated significantly beyond their base value, such as stocks or real estate. Utilizing a charitable remainder trust can allow the seller to skirt capital gains taxation on the appreciated value of the asset, while achieving their charitable giving goals at the same time.
Charitable remainder trusts feature two sets of beneficiaries, which usually entail the creator of the trust or another designated non-charitable beneficiary and the charitable organization of the creator’s choosing. The trust makes income payments to the non-charitable beneficiaries for the term of the trust, while the designated charities will receive the remaining principle upon the termination of the trust.
Within CRT’s, there are two options to be considered. A charitable remainder annuity trust must pay out at least 5 percent of the principal to a non-charitable beneficiary for the term of the trust and leave the remainder to a charity upon the termination of the trust. These trusts must be funded fully upon their creation, whereas a charitable remainder unit trust allows the creator to fund the trust over the term of the trust.
Meeting your goals for financial planning efficiency while using your resources to leave a lasting legacy with a charitable organization is a great privilege for those with the means to do so. With the guidance of an experienced estate planning attorney, you can avoid many of the obstacles and pitfalls along the way to crafting the legacy you want to leave for your beneficiaries.
Source: Investopedia, “Estate Planning: Charitable Trusts,” Cathy Pareto, accessed July 20, 2016