A charitable remainder trust is a tax-free, unalterable vehicle which will ensure that the beneficiary has to pay nothing for their income. This is a surefire way to give you and your significant other a steady income for the rest of your lives, and an excellent financial tool if you’re looking for better estate planning so you can help those in need.
The idea behind charitable remainder trusts is to reduce the taxable income for which individuals have to pay taxes. This is done by pledging a set sum of money to a charity, and then having it pay the beneficiary a stipend over a set period of time. After this set period expires, the remainder of the estate is given to the charities named as the beneficiaries.
Benefits of Charitable Remainder Trusts
There are many benefits to creating a charitable remainder trust as part of your estate plan. Not only can you receive a percentage of the sum from your trust, you will also enjoy additional benefits like:
- When you create the trust, you will get an immediate income tax deduction for giving funds to charity.
- Any profit that you make within the trust will be free of capital tax gains, and this means that you will have more freedom when it comes to managing your assets.
- There is the potential of growth for your income, as time passes.
- You have more diverse options when it comes to investments.
- After death, the assets in the trust will become eligible for tax deduction, because it was given to charity.
Cons of Charitable Remainder Trusts
There are two main downsides of a charitable remainder trust, one of which is the fact that it is irrevocable. Once you have created it, you cannot cancel it. You might have the ability to change it, meaning you can change the beneficiary to another charity if you wish, but you cannot take it back.
The second disadvantage of a charitable remainder trust is that the charity will assume ownership, despite the fact that it might not receive any benefit for years or even decades. Till the charity has taken ownership, the trustee you have assigned will be in charge of the control of all your assets.
There is also the fact that you may have to deal with complicated issues regarding taxes and their regulations. It would be a hassle to attempt to understand these yourself, which is why you should consult someone with experience in this estate planning method.
The Bottom Line
All in all, however, the pros outweigh the cons for estate holders who want their favorite charities to generate more revenue for their establishments.
A charitable remainder trust is a great financial tool, giving you the chance to contribute much-needed support to charitable causes of your choice. At the same time, these trusts also allow you to reduce estate taxes, get rid of capital gains, and be viable to get income tax reductions during your lifetime, so it’s a win-win!