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Exploring the benefits of charitable remainder trusts

On Behalf of | Aug 24, 2023 | Trusts |

Each person’s approach to estate planning depends on how they see their life now and how they want to see it in the future. Some people’s ideal future could include protected properties and supported families, while others might prefer to support their beloved charities in the future. For the latter group, a charitable remainder trust (CRT) is a fitting estate plan option.

On top of ensuring donations, a charitable remainder trust also provides the grantor other financial benefits when used as an estate planning tool.

CRT: An income-generating tool

A charitable remainder trust can be a potential regular source of income for the trustor and their beneficiaries. Once the donor transfers assets into the trust, the trust will pay the beneficiaries, which can include the donor, for a specific period. After that period, the trust’s remainder will pass to charities.

Note that the IRS lays down limits to regulate this income-generating benefit. First, the annual payment must be at least 5% but not more than 50% of the trust’s total assets. Second, the maximum duration for payment is 20 years or the period of life of one or more beneficiaries. Lastly, the remainder must be at least 10% of the initial market value of the trust’s total properties.

Various tax benefits for CRT assets

Since the trustor is technically donating assets to the trust, they enjoy tax-saving benefits. While it may only be partial, the grantor will get tax deductions for their donations. Additionally, they can get a reduction in capital gains and gift and estate taxes. They can also defer income taxes on the sale of assets transferred to the trust.

Including CRT in your estate plan

A meticulous review of your current situation and goals will determine whether including a charitable remainder trust in your estate plan is the best course of action. This way, you will know which estate planning tool secures your properties and your future.