Estate Planning Articles

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

by Alli Thomas

Mar 25, 2023

charitable remainder trust is an irrevocable trust you can use to receive a tax-advantaged income stream for life. Afterwards, the remaining trust assets are donated to a charitable organization (or organizations) of your choice.

For people looking to leave money to heirs as well as to a favored cause, a charitable remainder trust is one potential option for accomplishing this goal.

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 estate 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

Estate Tax Savings

When the trust is created, you receive an immediate charitable deduction for the value of any assets that are placed in the charitable remainder trust. The charitable remainder trust also removes these assets from your estate. Since they’ll be considered trust assets, the beneficiary’s heirs will not be responsible for paying estate taxes on them.

Increased Income Potential

Once assets are in the charitable remainder trust, the trustee can sell them at full market value without having to pay capital gains tax. The trustee can reinvest the proceeds of the sales in assets that generate income.

You may elect to receive income payments of a fixed percentage or a fixed dollar amount each year, depending on how the trust is set up.

If you’re single, the income payments will continue for the rest of your life. If you’re married, the income payments will last until the surviving spouse dies.

Protection Against Creditors

Because the charitable remainder trust is an irrevocable trust, creditors have no access to the trust’s assets.

Who Should Be Named as the Trustee?

While the trustor may be named as the trustee as well as the beneficiary, if the charitable trust is not set up and run it correctly, they’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 charitable organization may be designated as the trustee.

Who Controls the Charitable Remainder Trust?

While you are alive, the named trustee controls the trust and must act in accordance with the 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.

Want to Learn More About Charitable Remainder Trusts?

Setting up a charitable remainder trust — or any other type of trust — is something that should be attempted without professional advice. An estate planner, estate attorney, or financial advisor should be enlisted to answer your questions and create the trust on your behalf.

What type of trust is best for you and what assets should be placed into the trust will depend on your financial situation. Our network of financial advisors is ready to help you evaluate available options and create a comprehensive financial plan that helps you save on income and estate taxes. Click here to schedule a free, no-obligation meeting to get started.

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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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