Charitable Remainder Trust; Investment Alternative
Since September 11, 2001, charitable organizations have been at the forefront of media attention. With significant dollars invested by individuals and companies, charities often feel the cyclical affect of tragedy when generating revenue. In 1969, the US Government approved the Charitable Remainder Trust, also know as the CRT, to assist and benefit charities with increased revenues, significantly reduce estate taxes and provide income tax deductions and retirement income for individual approaching or already in retirement. Understanding this estate planning vehicle tool will not only eliminate capital gains but also provide a contribution to a great cause.
Under the Charitable Remainder Trust, an irrevocable trust is established identifying two beneficiary units, you and your spouse, known as income beneficiaries and the charity you name, also known as the charitable beneficiary. Under this Charitable Reminder Trust, you, as the income beneficiary, will receive a set income based on the gains and interest from the investment while the charitable beneficiary receives a specified amount, over a specified period of time, from the principal balance.
Establishing a Charitable Reminder Trust is quite simple with three decisions to be made at onset; the amount to be invested, the amount and method of income to receive at retirement and the type of charitable program to include. Charitable Remainder Trusts can be established for those nearing retirement, those already retired with the appeal of a unitrust to those between 60 and 75 as well as individuals over the age of 80, and an annuity appeal for those retirees at 75 years of age. Again, the program design is catered to the specific retirement needs of the investor.
The advantage to the Charitable Remainder Trust is found in the elimination of capital gains taxes, by the income beneficiary, and the added benefit of an income tax deduction for the fair market value of the balance of interest the trust has earned. Additionally, when the Charitable Remainder Trust is initially opened, the charitable tax deduction begins immediately and is calculated using a life expectancy table provided by the Internal Revenue Service.
Funding of the Charitable Remainder Trust is made by the income beneficiary many years in advance of retirement although it can be done as late as 80 years of age. At onset, the trust is established with a financial advisor with investments made in mutual funds, stocks and bonds providing a rate of return through many years. At the time of retirement, income is dispersed as established by the fund through a fixed annual dollar amount established and then dispersed to you and to the charity as so stated. This type of plan is referred to as a Charitable Remainder Annuity Trust. Another feasible option for disbursement is the Charitable Reminder Unitrust which provides for an annual payment based on an amount you select but no less than 5% of the fair market value of the asset.
With many baby boomers approaching retirement, the options for Charitable Remainder Trust will provide an investment tool to increase income from low-yield investments. In addition to diversifying the retirement portfolio, the Charitable Remainder Trust will provide the satisfaction of a commitment to the charity of selection. To learn more about estate planning and Charitable Remainder Trusts, discuss options with your financial planner.
