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Charitable remainder trusts reduce taxes and provide income

On Behalf of | Jan 4, 2023 | Estate Planning, Trusts |

Charitable remainder trusts are popular estate planning tools in Connecticut and around the country because they provide reliable income and may reduce capital gains, estate and gift taxes. The grantor earns a partial tax deduction when assets are placed in a charitable remainder trust. They then receive monthly, quarterly, semiannual or annual income payments for a specified period. When the last income payment has been made, the trust’s remaining assets are donated to the charities or foundations specified in the trust paperwork.

Irrevocable

Charitable remainder trusts are irrevocable, which means no changes can be made unless all beneficiaries give permission. This makes charitable remainder trusts quite inflexible, but it also provides tax benefits. The assets in irrevocable trusts are no longer owned by the grantor, which means they are not subject to estate taxes or the probate process.

Types of charitable remainder trust

There are two main kinds of charitable remainder trust. The income payments made by charitable remainder annuity trusts are fixed and do not change, but charitable remainder unitrust trusts are different. These trusts make payments based on the value of the trust’s remaining assets, and that figure is reevaluated every year. Each type of irrevocable trust is required to make annual income payments that are at least 5% but no more than 50% of the value of the remaining assets.

Estate planning tools

Many estate planning tools can be used to reduce taxes and prevent disputes between heirs and beneficiaries, but few of them offer as many benefits as charitable remainder trusts. They provide tax breaks when they are set up, and they generate reliable income for up to 20 years. A charitable remainder trust also protects assets if lawsuits are filed against the grantor or the grantor’s estate.

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