Positive Aspects of Charitable Remainder Trusts
If you want to give assets to your favorite charity, get a tax break now and provide income for yourself until your death, a charitable remainder trust may be the best option to meet your goals. Charitable remainder trusts are particularly suited to donors who want to give but also like the idea of hedging their bets against unforeseen future needs.
Take, for instance, a person who retires with company stock earned or purchased during his employment. He paid $20,000 for the stock over the years and it is now worth $120,000. When our retiree liquidates his stock, he will incur capital gains tax on the difference between the selling price and his original investment. The current long-term capital gains tax rate is 15 percent, so our retiree will pay $15,000 capital gains tax.
But, if our retiree wants to make a gift to a recognized non-profit organization, both he and the organization can avoid the capital gains tax bill by establishing a charitable remainder trust and transferring the stock to the trust. The trust can immediately liquidate the stock and diversify the investment.
Our retiree may also elect to receive an annuity paid from the trust's annual income for the rest of his life and only pay taxes on the annuity income. At the end of the retiree's annuity period, the remainder of the assets in the trust go to the non-profit.
Charitable remainder trusts are classified as split-interest trusts by the Internal Revenue Service because their assets are split between charitable and non-charitable beneficiaries. To qualify for tax-exempt status, trusts must provide annuity payments for a period of up to 20 years or for the life of the donor, benefit a recognized non-profit charity and leave at least 10 percent of the initial fair market value of the trust assets to the charity.
Our team of experienced estate planning professionals takes the time to understand your circumstances and recommend a course of action to meet your goals. For more information about a charitable remainder trust or any other estate planning need, call an estate planning lawyer at the Peterson Law Group. Our experienced Conroe, Texas attorneys help clients develop comprehensive estate plans, including drafting will and various trusts to fit their estate planning needs. Call us at 936-337-4681 or 979-703-7014 or contact us online to arrange an appointment.