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Charitable remainder trusts: charitable while receiving income

On Behalf of | Jan 18, 2021 | Trusts |

Many people in the Greenwich area have thought about their legacy after they are gone. Some people may have come from a long lineage of charitable giving while others are just now considering it. Besides naming a charity in a will or traditional trust, a charitable remainder trust may be a good option.

How a charitable remainder trust works

A charitable remainder trust is a way for a person to make contributions to the trust and be eligible for a tax deduction based on the trust’s assets that will pass to charities. A person can name themselves or someone else to receive the income stream from the trust for up to 20 years. At the end of the term, the charities named will receive the remainder of the assets.

Benefits of a charitable remainder trust

There are many benefits with a charitable remainder trust such as:

  • Income tax deductions. There is a potential for a person to take a tax deduction when they fund the trust based on the remainder distribution to the charity
  • Tax exempt. The trust’s investment income is tax exempt. It can be a good option for asset diversification and a person may want to consider donating low-basis assets to the fund.
  • Preserve the value of appreciated assets. Those who have long-term appreciated assets, such as property not generating income. The asset value will be preserved because the sale of it will be tax exempt.

A legal professional who is skilled in estate planning can help their client understand their many options when it comes to asset management both now and into the future. There are several strategies, many of which are tax efficient that a person may find useful.