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Charting Futures For More Than 30 Years

Is a charitable remainder trust right for you?

Over your lifetime you may have been committed your time and efforts to various social causes in Missouri or perhaps you went on to get a college education that served you well over the years. Many people in their 50s or 60s who are starting the estate planning process may decide that in addition to leaving an inheritance to their adult children, they may also want to leave part of their estate to a favorite charity. One way they can do this is through a charitable remainder trust.

What is a charitable remainder trust?

Charitable remainder trusts are a type of irrevocable trust, meaning they cannot be changed once executed. The trust is set up, and then the assets you wish do give to the charity are transferred to the trust. For a charitable remainder trust to be valid, the chosen charity must be one that is approved by the Internal Revenue Service.

The charity itself is appointed the trustee of the charitable remainder trust. This means it is responsible for investing and managing trust funds. The charity can then pay you or a named loved one a certain percentage of any income the trust makes either for a set number of years or until your death, per the terms of the trust. Once you pass away, the trust ends, and the assets donated to the trust are passed on to the charity.

There are tax advantages to a charitable remainder trust

There are several tax advantages to executing a charitable remainder trust.

First, once the trust is executed and funded, you can deduct it from your income taxes and spread it over the course of five years. That being said, the deduction is not the same as the amount to the initial gift. Instead, the IRS will calculate the deduction as your original gift minus what you are expected to gain as a return through interest payments.

Second, because the funds in a charitable remainder trust go to your selected charity outright upon your passing, the funds in the trust do not count as estate funds and thus are not subject to estate taxes.

Third, you do not need to pay capital gains taxes on the profits gained from the investment of the assets in a charitable remainder trust.

Charitable remainder trusts can be part of a well-rounded estate plan

Sometimes we find that we have a favorite social cause that we want to donate to or perhaps we want to donate to our alma mater. A charitable remainder trust is one vehicle for making a charitable donation that benefits both you and your chosen charity. Attorneys in the Chesterfield area may be able to provide legal advice on this topic, which this post does not provide.