The Benefits of Giving through a Charitable Trust

Are you looking for a way to make a financial difference to a charitable or educational institution of your choice? If so, you may want to consider using a charitable remainder trust (CRT). A CRT offers many advantages: lifetime income security, tax breaks, a smaller taxable estate, and the opportunity to direct family wealth according to your wishes.

The structure of a CRT is simple. You transfer assets to an irrevocable trust established for a charity of your choice. You can do this during your lifetime or through your will. The trust pays you and/or your beneficiaries an annual income for life or for a set period, after which all remaining assets pass to the charity.

Secure Immediate Income Tax Savings

One advantage of establishing a CRT is that you can take an immediate income tax deduction in the tax year you fund the trust (or your estate can claim a federal estate-tax deduction if the trust is set up in your will). So, even though the charity is effectively receiving a future gift, you can deduct the entire “present value” of the charitable remainder interest — the assets the charity will ultimately receive. The amount of your deduction depends on the number and ages of the income beneficiaries and the amount and term of the trust’s income payments. Higher income payments reduce your deduction amount, while lower income payments increase your deduction amount. IRS formulas and tables are used to compute the present value of your donation.

Avoid Capital Gains Tax

A qualified CRT is a tax-exempt entity. This means you’ll avoid paying any capital gains taxes on assets that you transfer to the trust. What’s more, your trustee will not incur capital gains taxes when the assets are sold. So, if you fund your CRT with assets that have appreciated in value, you may be able to avoid capital gains taxes and generate a predictable income. Since capital gains taxes do not apply to assets you transfer to a CRT, your trustee can reinvest all of the proceeds from the sale of the assets. Having more funds to invest should produce a higher income for the trust beneficiary.

Charitable Giving Remains a Good Idea

The assets that you place in a CRT are removed from your taxable estate, creating a potential reduction in estate taxes. However, the federal estate tax is scheduled for repeal in 2010 as a result of the 2001 tax law. Does this mean that you should reexamine your giving strategy? Not necessarily. The estate-tax repeal is slated to last for only one year unless Congress takes further action to extend it. And, even if the estate-tax repeal is extended beyond 2010, CRTs will still be an attractive strategy due to the income tax and capital gains advantages. Bottom line: Don’t let the possible repeal of the estate tax prevent you from using a CRT to achieve your personal goals.

The importance of working with professionals in planning your estate cannot be overemphasized. Contact us today to find out more about establishing a CRT. We will be happy to work with you to ensure that your gift arrangement carries out your specific wishes.

The Advantages of a Charitable Remainder Trust

In addition to the personal satisfaction of supporting a charitable organization, a charitable remainder trust also may yield estate-planning, income tax, and other benefits. With a CRT, you can:
• Secure a Tax Deduction — You are entitled to a federal income tax deduction, within certain limits, for the present value of the gift.
• Avoid Capital Gains Tax — There are no capital gains taxes on assets that are transferred to, and sold through, the trust.
• Enjoy Flexibility — You can make anyone you wish, including yourself and your spouse, an income beneficiary.
• Reduce Estate Tax — The assets that you place in the trust are not subject to estate tax.
• Leave Decisions up to Professionals — The burden of investment and management decisions is removed. The trustee you choose will make decisions to benefit you and/or other beneficiaries.