A charitable remainder trust is an unchangeable, tax-free vehicle that will ensure that the beneficiary does not have to pay anything for their income. This is a surefire way to provide you and your partner with a steady income for the rest of your lives, and a great 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 that people have to pay taxes on. This is done by pledging a fixed 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 rest of the estate is given to the charities named as beneficiaries.
Benefits of Remaining Charitable 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 of your trust, you will also enjoy additional benefits such as:
- When you create the trust, you’ll get an immediate income tax deduction for giving funds to charity.
- Any earnings you make within the trust will be free of capital gains tax, meaning you have more freedom in managing your assets.
- There is the potential for growth in your income, as time goes on.
- You have more diverse options when it comes to investments.
- After death, the trust assets will be eligible for tax deduction, because they were given to charity.
Cons of Remaining Charitable Trusts
There are two main disadvantages of a charitable remaining trust, one of which is the fact that it is irrevocable. Once you have created it, you cannot cancel it. You may have the ability to change it, which means you can change the beneficiary to another charity if you want, but you can’t withdraw it.
The second disadvantage of a charitable remainder trust is that the charity will take over ownership, even though you may not receive any benefits for years or even decades. Until the charity takes over, the trustee you have appointed will be in control of all your assets.
There is also the fact that you may have to deal with complicated issues related to taxes and their regulations. It would be a hassle to try to understand them yourself, so you should consult someone experienced in this method of estate planning.
The bottom line
However, in general, the pros outweigh the cons for property owners who want their favorite charities to generate more revenue for their properties.
A charitable remainder trust is an excellent financial tool that gives you the opportunity to contribute much-needed support to the 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 eligible for income tax reductions during your lifetime, so it’s a win-win!