A charitable remnant trust is an unalterable, tax-free vehicle that will ensure that the beneficiary does not have to pay anything for their income. This is a sure way to provide you and your partner with a steady income for the rest of your lives, and an excellent financial tool if you are looking for better estate planning to help those in need.
The idea behind charitable residual trusts is to reduce the taxable income that people have to pay taxes on. This is done by pledging a lump sum of money to a charity and then paying the beneficiary a stipend over a specified period of time. Once this set period expires, the remainder of the estate is given to the charities named as beneficiaries.
Benefits of the remaining charitable trusts
There are many benefits to creating a charitable remnant 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 will get an immediate income tax deduction for donating funds to charities.
- Any gains you make within the trust will be free of capital tax gains, and this means that you will have more freedom in managing your assets.
- There is the potential for your income to grow as time goes on.
- You have more diverse options when it comes to investments.
- After death, the assets in the trust will be eligible for tax deduction, because it was donated to charity.
Cons of the remaining charitable trusts
There are two main disadvantages of a charitable remnant trust, one of which is the fact that it is irrevocable. Once you’ve created it, you won’t be able to cancel it. You may have the ability to change it, which means that you can change the beneficiary to another charity if you wish, but you cannot withdraw it.
The second downside to a charitable remnant trust is that the charity will take over ownership, despite the fact that you may not receive any benefits for years or even decades. Until the charity has taken over, your appointed trustee will be in charge of all your assets.
There is also the fact that you may have to deal with complicated problems related to taxes and your regulations. It would be difficult to try to understand them yourself, so you should consult someone with experience in this method of estate planning.
The bottom line
Overall, however, the pros outweigh the cons for real estate owners who want their favorite charities to generate more income for their properties.
A charitable remainder trust is a great financial tool that gives you the opportunity 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 for income tax reductions over your lifetime, so it is beneficial to everyone!
