Many people like the idea of leaving a bequest to a favorite charity in their will. But an interesting alternative is to put assets now into a charitable remainder trust.
A charitable remainder trust is a trust that provides you (and possibly your spouse) with income for life. The trust can pay you a certain amount of income each year from investments, or you can choose to be paid a percentage of the trust assets each year. When you die, the “remainder” in the trust goes to the charity or charities of your choice.
Charitable remainder trusts have many advantages. For instance:
- At the time you create the trust, you’ll receive an income tax deduction for charitable giving. The deduction is based on the present value of the amount that will eventually go to charity.
- If you have stocks or other assets that have appreciated in value, putting them into a trust can be a good idea, because you may be able to avoid capital gains taxes when they’re sold.
- Any profits from the future sale of other investments within the trust also won’t be subject to capital gains tax, which means the trustee may have more freedom in managing the assets.
- When you die, the assets in the trust will pass outside your estate and be eligible for the estate tax charitable deduction.
The downside of a charitable remainder trust is that it is irrevocable, meaning that once you create the trust, you can’t cancel it. (While you can’t revoke the trust, you may have the ability to change the beneficiary if you decide to give to a different charity. You may also serve as the trustee if you want, giving you control over how the trust assets are invested.)
In addition, you should note that any income you receive from the trust will be subject to income taxes.
To find out if a charitable remainder trust is right for you, talk to your elder law attorney.