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Why use a charitable remainder trust?

On Behalf of | Oct 23, 2019 | Uncategorized

As you plan how to distribute your assets in your estate plan, you may choose to set aside some of your estate for charity. While you can take money and give it directly to a charity, you may want to take advantage of tax benefits that a charitable remainder trust can offer.

A charitable remainder trust can help you save on taxes while continuing to receive an annual income. Here are a few benefits of a charitable remainder trust:

  • Save on capital gains tax – If you have a large amount of stocks that have greatly increased in value since you bought them, you can avoid capital gains tax in a charitable trust. If your shares went up in value from a few hundred thousand dollars to millions of dollars, the IRS may charge you up to 20% in capital gains tax. However, if you transfer the shares to a charitable trust, the trust can sell the shares and avoid this tax.
  • Pay yourself an annual income – With a charitable remainder trust, you receive an annual income. This income is either a percentage of the trust’s value or a fixed rate that you decide on when setting up the trust. After you pass away, the remaining balance in the trust goes to the charity.
  • Reduce the value of your estate to avoid estate tax – Once you put your assets in the charitable trust, they become property of the trust. This reduces the total value of your estate. You can use charitable trusts as a tool to help avoid estate tax. Since the trust is a legal entity that takes control of the assets, the IRS doesn’t consider any assets in a charitable trust as a part of your estate.
  • Receive an income tax reduction – As with any charitable giving, you can receive an income tax deduction when you set up a charitable trust. After the trust is set up, you can take the total income tax deduction and spread it over five years.

While charitable remainder trusts can give you certain benefits, they are also irrevocable. Once you create the trust, you cannot change it or take the assets back out of it. However, they are not the only charitable trusts you can create. Make sure to speak with a qualified attorney to see what charitable trust gives you the best benefits.

Charitable remainder trusts can be a great way for you to both receive tax benefits while supporting a charitable association. They can be a positive benefit to your whole estate plan.


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