charitable remainder trust

Online Guide to
Charitable Trusts

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charitable foundation
Charitable Trust (n. - definition) - a legal vehicle that enables the grantor at some time in the future or at death to direct contributed assets to selected charities.
charitable foundation


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by Retirement Plans Advisor

How should you manage your retirement money in a BEAR Market?

  • In essence, charitable trusts are a legal vehicle enabling the grantor at some time in the future or at his/her death to direct where some of the assets will eventually wind up.

  • Without this means of directly deciding on who the future charitable beneficiary will be; at death, the decision regarding where some of your assets go is effectively made by others and/or by the taxing authorities. It's very much simply a question of this: who should decide on where your "social capital" goes?

  • With or without a particular affinity to a religious organization, charitable cause, educational institutions, hospital etc.; it still might make sense to consider the efficaciousness of this type of vehicle. For most citizens, virtually all of their assets at death can simply go to whomever they wish: spouse, children, grandchildren, other family members, friends etc. But, for others, a portion of their assets will be subject to taxes and used as others decide and it is these others that might want to consider the use of a Charitable Remainder Trust.

  • Typically, these charitable trusts are not structured to minimize asset transfers to other selected heirs; rather, structured properly and, when used with other financial techniques, the net transfer to selected heirs can often be enhanced.

  • Additionally, and importantly, prior to any charitable disbursements from the trusts, the assets within the trusts are used to provide a continuous stream of income for life to the grantor and his/her other named income beneficiaries.

  • Overall, for many people, and for many different scenarios, charitable remainder trusts can prove to be very advantageous.

  • The donor hires an attorney to construct and write the legal documents necessary to create a Charitable Remainder Annuity Trust (CRAT).

  • Assets are irrevocably placed in the trust naming a charity as the eventual recipient of the assets upon the death of the last named lifetime income beneficiary.

  • A fixed amount of income, i.e., 6% to 10%, is paid from a Charitable Remainder Annuity Trust (CRAT) annually to the donor or donor's named income beneficiary (husband, wife) for life. A Charitable Remainder UniTrust (CRUT) pays an annual fixed percent of the underlying assets.

  • The donor of the assets placed in the trust receives a current tax deduction for the donation and they avoid any and all capital gains on the donated assets. The amount of tax deduction associated with the donation depends on the age of the last income recipient and the donor's elected income or percent lifetime payout from trust.

  • Donor can lock in current market appreciation on assets; convert a low yielding stock position to a high yielding bond position; broadly diversify a portfolio; and structure to parallel donated asset's future appreciation. Control of the assets remains with the donor's appointed trustee, which can be the donor.

  • The charitable remainder trust can provide potentially significantly higher lifetime income to the donor, and or other named lifetime income beneficiaries.

  • Potential to replace the gifted value to other intended heirs on a tax free basis, with one of several cost effective life insurance related strategies.

  • Partial or full elimination of the asset gifted from Federal Estate Tax calculations upon the death of the donor.

  • Significantly benefit your favorite charity(s) sometime in the future.

  • Generally, this concept works for everyone with appreciated assets; however, each situation is different and unique and there are a number of variables which enter in the calculations based on age, tax bracket, income payout percentages.

  • If the donor's lifetime payout is a fixed dollar amount then the donor is permitted only a one-time asset donation to the trust (CRAT). A CRUT allows additional contributions to the charitable remainder trust. Income payouts on CRUT's effectively can be deferred within the trusts and paid out at some future date with a catch-up provision; therefore, they can be effectively used as excellent retirement vehicles.



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