If you would like to reduce taxes and give to charity while you meet the financial needs of your family, a charitable trust may be a worthwhile estate planning tool. When families sell highly appreciated assets, they must pay capital gains tax. However, contributing the assets to a charitable trust rather than selling them eliminates this tax. Setting up a charitable trust can allow you to provide your family with income now or later. Either way, a charitable trust can serve a great cause, provide for your loved ones, and provide tax shelter.

Charitable remainder trusts come in two basic forms:

• The Charitable Remainder Annuity Trust (CRAT).

• The Charitable Remainder Unitrust (CRUT).

The main differences: A CRAT pays out a fixed dollar amount every year, established at the time the trust is set up. Conversely, a CRUT pays out an annual amount based on the trust’s investment performance, which can fluctuate.

For either type of trust, the annual payout cannot be less than five percent of the trust’s value. If a CRAT’s annual earnings are not sufficient to cover the required payout, it must dip into its principal or accumulated earnings to make the payment. A CRUT, however, can be set up so that it defers payouts until the trust’s earnings are enough to support them.

Charitable Remainder Annuity Trust

A charitable remainder annuity trust is a relatively simple tax shelter. First, you transfer money or property to an irrevocable trust. The trust then provides annual income to a designated beneficiary for his or her lifetime or a specific number of years. When the trust term ends, the remaining assets automatically go to the charity of your choice.

In return for your generosity, you are entitled to a current tax deduction for the present value of assets you have transferred to the trust. The exact amount of the deduction depends on interest rates, your age, and other factors.

Charitable Lead Trust

A charitable lead trust is often described as the reverse of a charitable remainder trust. With this option, the charity receives income during your lifetime or a specified period.

The beneficiary receives the remainder of the trust after your death. The gift value of the remainder going to the beneficiary can vary due to a rise or fall in interest rates.

Next Step

As you consider your charitable options, keep in mind that a rise or fall in interest rates can affect some trusts. Contact a Hantzmon Wiebel team member to determine your best next step. We can help you select the best option and set up a charitable trust that works for your situation.

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Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.




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