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Five Benefits of Creating a Charitable Remainder Trust

Five Benefits of Creating a Charitable Remainder Trust

Many of us have worked hard for our entire lives and would like to give back to the causes we care about after we are gone. One of the best ways to give to the charities you care about is to create a charitable remainder trust. To create a charitable remainder trust, you will need to transfer assets into an irrevocable trust with a charitable remainder. For example, you can transfer a rental property you own into a charitable remainder trust. Once your trust is funded with assets, either you or your named beneficiary will receive annual payments from the trust. The, when you pass away, the remainder of the assets in the trust will be donated to the charity you have named.

When you create a charitable trust, you can control your charitable contributions while potentially reducing your income tax and estate tax liability. Moreover, when you create a well-drafted charitable trust, you will have a sense of certainty that the charities of your choice will receive your assets. There are several ways that creating a charitable trust can benefit you and the charities you love.

Tax Deductions

Setting up a charitable trust can help you save on tax liability, allowing you to give more to the charities you love. Donating to a charitable trust provides greater tax benefits than merely an income tax deduction. When you set up a charitable trust correctly, you may also be able to reduce your estate taxes and keep more of your hard-earned money rather than simply taking an income tax deduction. After you donate to a charitable trust, you will be able to claim an immediate income tax deduction for the amount of assets you contributed to the trust. Your lawyer can also help you set up a charitable trust so that donors receive a charitable deduction in the year the trust is funded.

Preserving Highly Appreciated Assets

Another benefit of creating a charitable trust is to preserve highly appreciated assets. When you contribute highly appreciated assets to a charitable trust, you will be able to preserve the value of your assets. At the same time, you will also be able to avoid paying capital gains tax that you would need to pay if you sold your highly appreciated assets outright. When a charitable trust sells these assets, it will not incur capital gains tax liability, allowing you to receive annual payments from the trust without incurring capital gains tax and allowing you to give more to your chosen charitable organizations.

Creating an Income

Once you give away your assets, they are no longer able to earn interest. By creating a charitable remainder trust, you can ensure that your assets will continue to produce an income. Many of our clients will transfer ownership of their assets into a charitable trust, allow the trust to sell the assets without incurring any additional tax liability, and then place the remainder back into the trust. Doing so can create an income stream for the donor’s benefit - another unique benefit of creating a charitable remainder trust. Donors also have the option of waiting and taking the income when their tax bracket is lower.

Charitable Trusts are Flexible

If you decide to create a charitable trust, you have flexibility regarding its terms. You can determine precisely how you would like your assets to be placed in the trust, whether you would like them to be invested in money market accounts or the stock market to earn income, and how you would like the assets to be distributed – keeping in mind that the remainder must be donated to a charity. These trusts require more initial planning and time to set up, but once they are set up correctly, they are usually easy to support and maintain over time.

Charitable Trusts Give You Control

There are several different types of charitable trusts, and each estate plan can specify the terms of the trust that best suits your needs. Many of our clients do not want to simply give their assets to a charity in their will because they may have concerns about their wishes being enforced. By creating a charitable trust, you will be able to transfer ownership of your assets into the trust before you pass away, and you can appoint trustees to manage the trust effectively. If you are interested in creating a charitable remainder trust as part of your estate plan, contact Arnold & Smith, PLLC today to schedule your initial consultation at our Charlotte, Mooresville, or Monroe offices.