Both individuals and businesses make donations to charities. While donations are generally always welcomed, there are financial implications and considerations surrounding a donation that must be considered. A donation does not need to be an outright gift; there are other options available for donation purposes. It can be beneficial to set up a charitable remainder trust to donate to charity. A charitable remainder trust is an instrument that provides for donations to charity, while still allowing the donor to make income off of the property in the trust. A charitable remainder trust is an essential part of a financial plan that should be considered before making a large charitable donation or gift.
The Basics of Charitable Remainder Trusts
A charitable remainder trust is made by the settlor (the person setting up the trust) and transferring the property that is intended to be in the trust into the trust. The charity intended to receive proceeds from the trust is the trustee. The principal of the trust is invested and the settlor receives a portion of the trust in the form of an annuity. If the settlor dies, or the period of time specified for the trust elapses, the remainder of the trust is then distributed to the charity.
A charitable remainder trust is irrevocable, meaning that the trust cann ot be changed. When the property or assets are transferred into the trust, the trust is then the owner of the assets or property. Legal control of the property is transferred the trust. The charity must be an approved charity. Approved charities are usually those that are a tax-exempt organization under IRS definitions.
Types of Trusts
There are two main types of charitable remainder trusts:
- Charitable Remainder Unitrust: The annuity amount that is paid to the settlor is calculated annually as a percentage of the fair market value of the property donated in the trust.
- Charitable Remainder Annuity Trust: The annuity amount is a fixed percentage, meaning the settlor receives the same amount throughout the life of the trust
Benefits of a Charitable Remainder Trust
There are many reasons you might choose to set up a charitable remainder trust for donations.
- Tax Breaks: There are tax implications of a charitable remainder trust. The settlor is able to take a deduction over five years for the value of the gift being given through the trust. Additionally, there are no capital gains tax when the asset or property is sold.
- Receiving Income: The settlor is able to receive income over the life of the trust.
- Pursuing Philanthropic Goals: The settlor is encouraged to make charitable contributions, but is able to still generate income for themselves.
- Creditor Protection: Assets in the trust are generally protected from any creditors.
If you want to set up a charitable remainder trust, consult with an experienced attorney at the Law Office of Kris Mukherji. All of the benefits of the trust do not eliminate the complex process of setting up the trust. Contact us today to get your trust set up in the correct manner.Read More