Many people who have these thoughts think about philanthropic acts, and charitable giving can indeed be part of your legacy plan. With this in mind, we will look at charitable remainder trusts in this post.
One form of charitable remainder trust is the charitable remainder unitrust or CRUT. The way that it works is you convey assets into the trust, and you name a charitable beneficiary. The charitable beneficiary must ultimately assume ownership of at least 10 percent of the value of the trust.
When you establish a charitable remainder trust, you are called the grantor of the trust. You also name a non-charitable beneficiary in the trust declaration, and the grantor would generally act as the non-charitable beneficiary.
The non-charitable beneficiary must receive a fixed annuity percentage of at least five percent and not more than 50 percent of the value of the trust in annuity payments each year.
After the expiration of the trust term, the charitable beneficiary would assume ownership of the remainder.
Charitable Remainder Annuity Trust
There is another type of charitable remainder trust called a charitable remainder annuity trust (CRAT), and it works in the same manner, but there is one slight difference.
With a charitable remainder annuity trust, the non-charitable beneficiary receives fixed annuity payments each year. The payments are not based on a percentage of the value of the trust. The charitable beneficiary assumes ownership of the remainder in the trust at the conclusion of the term.
People often say that giving is its own reward, but there are some tax advantages that can be realized if you create a charitable remainder trust. First of all, you get a charitable deduction, because a charity will eventually be assuming ownership of some of the assets that have been conveyed into the trust.
Assets that you convey into the trust are going to be removed from your estate for estate tax purposes, and this is another benefit if you are in possession of a considerable store of wealth.
There can also be capital gains benefits. If you convey appreciated assets into the trust, the trust could sell these assets. This would spread the capital gains responsibility throughout the duration of the trust term. On the other hand, if you sold the assets yourself, you would be forced to pay capital gains taxes all at once.
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