Charitable giving can be a very rewarding endeavor when you are crafting your legacy. When you engage in philanthropic acts you receive personal rewards, but there can also be tax advantages if you take the right steps. With this in mind, we will look at charitable remainder trusts in this post.
Overview
If you are creating a charitable remainder trust, you are called the grantor of the trust. To enjoy the maximum benefits, you want to fund the trust with assets that have appreciated considerably while they were in your possession.
You name a charitable beneficiary who will assume ownership of the remainder that is left in the trust after the term of the trust expires. The charitable beneficiary must ultimately receive at least 10 percent of the value of the trust.
There must also be a non-charitable beneficiary. The grantor of the trust would typically act as the non-charitable beneficiary.
There are charitable remainder annuity trusts, and charitable remainder unitrusts.
If you have a charitable remainder annuity trust, you would receive a fixed annual annuity payment. This payment must be at least five percent and no more than 50 percent of the value of the trust. With a charitable remainder unitrust, the non-charitable beneficiary receives a fixed percentage each year.
Ultimately, you receive income while you simultaneously facilitate a future asset transfer to a charity of your choosing.
Tax Advantages
There are a number of different tax advantages that you gain when you create a charitable remainder trust. For one, you get a charitable deduction that is based on the amount that will eventually go to the charitable beneficiary.
In addition to this, you are removing assets from your taxable estate when you create the charitable remainder trust. If you have estate tax liability, this can be another advantage. At the present time, the estate tax exclusion is $5.34 million. Anything that you want to transfer that exceeds this amount would potentially be subject to the federal estate tax.
Thirdly, there can be significant capital gains advantages. If you conveyed appreciated assets into the trust, the trustee could sell these assets, and no capital gains tax would be due immediately. Your annual annuity payments would be subject capital gains tax, but the responsibility would be spread over a number of years.
If you want to give to a charitable cause as you simultaneously reduce your tax burden, a charitable remainder trust can be a good choice.
Learn More About Charitable Remainder Trusts
Clearly, charitable remainder trusts are a bit complicated. We have provided a bit of basic information in this post. If you would like to learn more, contact us to schedule a free consultation.
You can request an appointment through this page: Campbell CA Estate Planning Consultation.
- 2024 Federal Estate and Gift Tax Update (VIDEO) - November 16, 2023
- National Long-Term Care Awareness Month (VIDEO) - November 13, 2023
- Proposition 19 and Repeal the Death Tax Act (VIDEO) - November 3, 2023
