If your portfolio includes securities or real estate assets that have significantly appreciated, you may want to consider a charitable remainder trust. This type of trust allows you to convert assets that would typically be subject to significant capital gain tax if sold.
At Bezaire, Ledwitz & Borncamp, our trust and estate attorneys can talk to you about donating your assets using this estate administration tool. Our attorneys are are ready to help you reach your charitable giving goals.
How Does a Charitable Remainder Trust Work?
In a charitable remainder trust, your highly appreciated asset is transferred into an irrevocable charitable remainder trust. This transfer is done without the typical capital gain tax implications. The asset is then sold by the trustee and the proceeds are then reinvested. The interest from the proceeds generates income for your named beneficiaries, which can include yourself as well as an identified charity or nonprofit organization. When the trust ends, the balance can be transferred to the organization’s endowment or another named beneficiary.
Helping You Decide What Type of Charitable Remainder Trust Will Meet Your Goals
Charitable remainder trusts fall into one of two categories:
Unitrust — In a unitrust, the value of the trust assets is revalued each year and the amount of income that you or another beneficiary would receive is a preset percentage of the total value of the trust.
Annuity trust — When an annuity trust is established, the income payments are set at a fixed amount and not subject to market risk.
The benefits of a charitable remainder trust include:
- You receive income for your life, or for a designated number of years
- The potential to convert an asset with low-yields into an income generator
- Obtaining significant tax savings, including income tax deduction and eliminating capital gain tax
- Can be used as a tool to avoid estate tax and probate fees
- Providing ongoing support to organizations you want to support and can help create your legacy
This type of trust can be combined with an Irrevocable Life Insurance Trust (ILIT) and life insurance to significantly enhance the benefit — both in terms of tax implications and actual inheritance to your children and heirs.
Our firm looks forward to discussing your goals and needs for your charitable giving. We will talk with you about your situation and about whether or not a charitable lead trust could also help you meet your goals.