Estate Planning Articles

Charitable Remainder Trusts: What Are They and Should You Have One?

by Alli Thomas

Apr 7, 2022

A charitable remainder trust is an irrevocable trust that allows you—or a designated beneficiary—to receive an income stream for life. After you die, the remainder of the assets in the trust are donated to your charity (or charities) of choice.  

If you’re looking to leave money to your heirs AND donate money to your pet causes, a charitable remainder trust is one potential option. 

What are the Benefits of a Charitable Remainder Trust?

There are four reasons you may find a charitable remainder trust to be an attractive choice for your estate plan:

  • You can save on taxes.
  • You can increase your income.
  • You can contribute to a cause (or causes) that mean something to you.
  • You can protect the money from creditors.

Let’s take a closer look at these benefits.

Tax savings: you’ll receive an immediate charitable tax deduction on any assets that you place in the trust. This type of account also removes assets from your estate, so your heirs will not be responsible for paying estate taxes on them after you die.

Increased income: once your assets are in the trust, the trustee sells them at full market value without having to pay capital gains tax. The trustee then reinvests the proceeds of the sales in assets that generate income. You may elect to receive a fixed percentage or a fixed dollar amount each year, depending on how you set up the trust. If you’re single, you will receive the income for the rest of your life. If you’re married, the income will last until the surviving spouse dies. 

Contributing to your favorite charities: after you (and your spouse, if you’re married) dies, the remaining assets in the trust will be given to the charities you specified.

Protection against creditors: because the assets are in an irrevocable trust, creditors have no access to them.

Who Should Be Named as the Trustee?

You yourself may be named as the trustee, but if the trust is not set up and run it correctly, you’ll be on the hook for taxes and penalties.

That’s why many people who choose a charitable remainder trust opt to name a corporate trustee, such as a bank. In some situations, the named charity may be the trustee.

Who Controls the Trust?

While you’re alive, the named trustee controls the trust and must act in accordance with your instructions for the trust. If you decide that your initial choice of trustee isn’t working out, you can name a new trustee. You may also change the charity to which the trust will pass your assets.

How Do I Learn More About Charitable Remainder Trusts?

This is something that you should not try to embark on without professional advice. An estate planner, attorney or advisor can help answer your questions about charitable remainder trusts.

Did you know that we work with many experienced financial advisors who are ready to help you? Click here to schedule a free, no-obligation meeting with one of them.

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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