It’s officially November, which means shopping malls everywhere are queuing up their holiday playlists and storefronts will soon be decked with holly. The holiday spirit is in the air, and it’s got us thinking about what that means in the world of estate planning. How do you leave a legacy of giving, of holiday cheer after you’re gone? How do you spread joy in your passing? For many, the answer is a charitable remainder trust.
Leave a Legacy of Giving with a Charitable Remainder Trust
Wills and trusts come in all shapes and sizes to meet different people’s different needs. For some, estate planning is about looking after family, for others, it’s about both caring for loved ones and leaving a legacy, while for others still, it’s about all this plus attending to philanthropic aims. Folks in the privileged position of having enough to make charitable giving a part of their planning may be excited to learn about the tax advantages that come with using a charitable remainder trust.
When you use non-essential assets to set up a trust with a qualifying charity in mind, you gain a tax deduction! This means you now have to establish a vehicle to benefit yourself or a chosen beneficiary. How this works, we break down next.
Establishing a charitable remainder trust starts with selecting assets (cash, stocks, real estate, etc.) to donate to a trust. These assets are then used to pay one or more noncharitable beneficiaries for a stated period of time. When this period expires, the assets that remain are transferred to one or more charitable beneficiaries. The tax deduction you receive depends on the trust type and term, the projected income payments to your chosen charity or charities, and interest rates set by the IRS. You can think of a charitable remainder trust as a sort of savings account that thanks you in tax breaks for donating the balance that remains after you pass.
However, because Charitable Remainder Trusts are irrevocable, once assets are donated to the trust, they stay there. This key detail is why this type of trust offers such remarkable tax advantages but it’s also a reason to exercise caution. Transferring assets into a trust means surrendering all ownership rights. The downside of this is you can’t get these assets back even if your financial position changes. The upside is that these assets are exempt from the probate process, are not subject to estate taxes, and can transfer to your charitable beneficiary immediately upon your (or your non-charitable beneficiary’s) death.
Your best resource for learning about the different types of charitable remainder trusts is an experienced will and trust attorney. After all, while the giving spirit is universal, the best way to express it depends on numerous individual factors.