Do you want to make sure that your favorite charity or charities are provided for after you’re gone as well as reduce the tax burden on your estate? Would you like the opportunity to earn revenue from an asset without selling it?
There is an answer.
The Charitable Trust
These are also called “charitable remainder trusts,” and are irrevocable trusts that help reduce your estate taxes. You can create them in the process of setting up your estate planning. These trusts can also generate income for you in your retirement.
What you’ll do is donate appreciated assets to the trust. Under the terms of the trust, you and/or your beneficiaries that you name receive payments for a specific length of time, or until the death of the last beneficiary. As the grantor and/or trustor, you will no longer have ownership rights to these assets, which can include:
- Non-publicly traded assets such as
- Real estate
- Private company stock
- Private business interests
Keeping the assets can significantly raise the tax burden on your estate as well as for your beneficiaries.
Benefits Of The Charitable Trust
There are a number of good reasons to consider one, including:
- Transform a valued asset into a stream of income for life, which would be significantly more than you would if you sold the asset outright
- Decrease your current income taxes
- No capital gains taxes from the sale of the asset
- Decrease and/or eliminate any estate taxes
- Protect the assets from creditors
- Ensure that your named charities will benefit after your death
- Use a life insurance trust to replace the asset when making your children beneficiaries
Requirements For Disbursement
The usual time frame for these trusts are 20 years. After the time elapses, the remaining assets are is transferred to a designated charity or charities that are also named as beneficiaries.
You can set up your trust to make disbursements yearly, semi-annually, quarterly or monthly. The IRS requires that the annuity payment must be no less than 5% of the trust’s assets, and no more than 50%.
The annual payment can be a percentage, or it can be a fixed dollar amount. The most common method is to set the payments as a percentage of the value of the current worth of the trust’s assets. The assets are re-appraised on a yearly basis, and your payments are based on a percentage of that amount. Should inflation or good investment increase the dollar amount of the trust’s assets, your annuity payments will increase accordingly.
Choosing the fixed dollar amount means that you’ll receive the same amount no matter how much the assets appreciate. It also means that your payments won’t be adjusted for inflation.
Charitable trusts are an option that allows people to pursue philanthropic aspirations and still generate an income for retirement and/or estate planning.
Interested In A Charitable Trust? Call Provenza Law
If a charitable trust distribution sounds like something you’d like to consider for your estate plan, call us for an appointment. We understand estate planning and how to make this happen for you. James C. Provenza is an Illinois estate planning attorney with more than 25 years of estate planning experience. Call our firm today at (847) 729-3939, or use our online contact form.