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Charitable Remainder Trust Basics

A charitable remainder trust is an important estate planning tool. Charitable remainder trusts are a way to support a cause you love while also getting tax benefits for yourself and your heirs. This article looks at the specifics of charitable remainder trusts and gives a brief introduction to the most common kinds of charitable remainder trusts that are accessible to those in Florida.

What is a Charitable Remainder Trust?

A charitable remainder trust is a trust that a person creates and contributes to where the creator of the trust gets a tax break, the creator of the trust or someone he or she names gets income from the trust, and at a specified time the remainder of the trust goes to a charity. A charitable remainder trust is a way for someone to get the tax breaks now for a donation that will be actually given in the future. It also lets either the grantor (the creator of the trust) or someone he or she designates have an income stream while the trust is in existence.

Types of Charitable Remainder Trusts

There are two common types of charitable remainder trusts and those are charitable remainder annuity trusts (CRAT) and charitable remainder unitrusts (CRUT). A CRAT is a trust where the grantor puts a specific amount of money in the trust and gets a specific amount of money given to them back from the trust each year. With a CRAT, grantors are not able to add additional money to the trust. A CRUT is different because instead of a specific amount of money each year, the grantor or a non-charitable beneficiary is given a percentage of the assets each year. Grantors can also add contributions to the CRUT throughout the life of the trust. 

Advantages of a Charitable Remainder Trust

There are several advantages to using a charitable remainder trust as part of your estate planning. Most of these advantages are tax advantages:

  • Income Tax- The income tax benefits for a charitable remainder trust include being able to immediately deduct some of the value of the trust at the time it is funded. Deductions can be taken over five years. The amount of the deduction will vary, but the IRS tries to estimate the amount that the charity will get in the end. In other words, the remainder value after payouts and income.
  • Capital Gains Tax– With a charitable remainder trust, the income earned from the appreciation of assets in the trust are not subject to capital gains tax when sold by the charity.
  • Estate Tax-The “remainder” that the charity is given is not part of the estate. Therefore, no estate tax will be owed on it.

The Villages Estate Planning Attorneys

In order to know whether or not a charitable remainder trust is a good choice for your personal estate planning circumstances, you should talk to a knowledgeable estate planning attorney to help you figure out what makes sense for you and your heirs. Our experienced estate planning attorneys at Millhorn Elder Law Planning Group located in The Villages can help you to meet all your estate planning needs.

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