What is a Charitable Remainder Trust and What Does It Do? Bratton Scott, South Jersey Elder Lawyers, Explain

When planning for the long term future, many people are interested in making sure that their philanthropic interests are addressed and the charities that they are passionate about receive a portion of their assets. There are a variety of ways to address this while working on an estate plan, but one of the best is to set up a charitable remainder trust that establishes a trust in the name of the charity rather than bestowing a one-time gift. The South Jersey estate planning and elder lawyers at Bratton Scott are experienced and knowledgeable in all aspects of estate planning, and are able to explain the various benefits in charitable remainder trust planning.

There are a number of reasons for setting up a charitable remainder trust, and one of the best is that it provides you with income for the duration of your life while at the same time making a gift to the charity whose work you admire the most.  The assets that you set aside for the group will remain in trust and a set percentage of the assets will be distributed to you and your spouse. After your death, the amount that remains becomes the property of the charity.  The advantages of this type of giving include:

  • Getting a charitable tax deduction at the time that you fund the trust, thus reducing your tax burden
  • Reducing your taxable income
  • Providing income for the duration of your lifetime
  • Diversification of assets

It is important to remember that a charitable remainder trust is always set up as an irrevocable trust, which means that once it has been established, it cannot be canceled. That being said, it is often possible to shift from one charity as beneficiary to another, so if your sentiments about the value of the work being done by a group shift, you can reflect that change. It is also important to remember that the income that you receive from the trust is taxable.

There are two types of charitable remainder trusts – the unitrust and the annuity trust. The two are similar, with the biggest difference being that in an annuity trust, the income beneficiary must be paid a fixed sum annually based on the assets at the time they were established as a trust, while in the case a of a unitrust, the beneficiary must be paid that percentage based on the assets being revalued each year. In both cases, the interests are divided into an income interest and a remainder interest, with the charity being named as the remainder beneficiary. There is a minimum of at least five percent of the value of the assets that needs to be distributed to the income beneficiary, though a unitrust can be limited to actual earnings in a given year.

There are a number of requirements that the Internal Revenue Service demands be met in order for a trust to qualify as a charitable remainder trust. For more information on how to set up one of these highly advantageous trusts, contact the South Jersey estate planning and elder lawyers at Bratton Scott today.

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