Select Page

Charitable Trust: Philanthropy and Retirement Income

Individuals often view retirement income planning and legacy planning as discreet exercises. In fact, these planning objectives can both be met through the use of charitable remainder trusts (CRTs), which is an irrevocable trust in which you—the donor—receive income generated by the assets donated to the trust, while the remaining assets at your death are distributed to a charity selected by you.

To view the full article please register below:

    First Name (required)

    Last Name (required)

    Your Email (required)

    Charitable Trust: Philanthropy and Retirement Income

    Charitable Trust: Philanthropy and Retirement Income

    Individuals often view retirement income planning and legacy planning as discreet exercises. In fact, these planning objectives can both be met through the use of an charitable remainder trust (CRT).

    What is CRT and How Does it Work?

    A CRT is an irrevocable trust in which you—the donor—receive income generated by the assets donated to the trust, while the remaining assets at your death are distributed to a charity selected by you. The donor has the option to select someone other than him or herself as the income beneficiary on a CRT.

    Trust distributions may be paid out for a fixed term of no more than 20 years or for life of the non-charitable income beneficiary(ies). Income payouts must be at least 5%, but no more than 50%.

    There are two basic types of CRTs:

    • Charitable remainder annuity trust (CRAT), which distributes a fixed amount to the income beneficiary each year based on the value of the assets on the date they were donated to the trust
    • Charitable remainder unitrust (CRUT), which annually pays out a fixed percentage based on the annually recalculated value of the trust’s assets

    For instance, if you donate $300,000 to a CRAT with a 4% payout, the annual income will be $12,000 every year of the CRAT’s existence. In a CRUT with the same donation and targeted percentage payout, the income beneficiary would receive $12,000 in the first year. However, payouts in subsequent years will vary as the value of the assets fluctuates. Thus, if the value of the assets decreases to $250,000, then the next year’s income would be $10,000.

    Tax Planning Benefits

    There are several valuable tax planning benefits to establishing a CRT. The first is the potential for a partial income tax deduction when you fund the trust. Determining the tax-deductible portion is a complicated calculation that should be performed by a tax advisor or estate planning attorney.

    Another tax advantage is that the CRT’s investment returns are exempt from taxation, so the money works more efficiently to deliver potentially higher income to you.

    Finally, by donating highly appreciated assets, you can avoid paying capital gains taxes. So, rather than selling a highly appreciated investment and seeing its value reduced through capital gains taxation, the asset can be donated to a CRT, sold by the trust tax free, and fully reinvested to potentially generate higher income for you and a larger future gift for the charity.

    Individuals should discuss with their tax advisor the relative merits of a CRT to their personal situation and work with an experienced estate planning attorney in setting up a CRT.

    Please reference disclosures at: https://blog.americanportfolios.com/disclosures/

    Contributor

     

    Director of Insurance Products 
    631.439.4600, ext. 177 

    Subscribe

      Subscribe to receive a monthly recap of our three most popular posts.

      Recent Videos

      Loading...

      AP Awards 2021