When you are considering the manner in which you would like your assets to be distributed after your death you may decide that charitable giving is part of the plan. Doing what you can to help those less fortunate than you is always meaningful, but it takes on an added significance as your twilight years begin to appear over the horizon. There are a number of ways that one can fulfill this admirable philanthropic urge, and one of them is through the creation of a charitable remainder trust.
With the charitable remainder trust you fund the vehicle and you then receive income from it for a specified period of time; many people will use the trust to provide income for the rest of their lives. The amount that you receive must be at least 5% the fair market value of the principal as determined by the trustee and no more than 50% (10% is one standard rule of thumb).
You are required to accept a distribution annually at minimum, but you can stipulate that more frequent distributions take place. With charitable remainder unitrusts (CRUTS) this amount is a percentage of the value of the assets in the trust. With charitable remainder annuity trusts (CRATS) the donor (or whoever the beneficiary or beneficiaries may be) receives a fixed amount.
At the end of the trust term, the charity or tax-exempt entity of your choice assumes ownership of the remaining assets in the trust, and this remainder interest actuarially must be at least 10% of the original contribution.
From a tax perspective, right off the bat the contribution into the trust is removed from your estate for estate tax purposes. If you contribute appreciated assets that appreciation is not subject to capital gains tax at the time they are transferred into the trust, nor are subsequent earnings once the trust has been established. And you are also entitled to a charitable deduction from estate taxes for the amount of the remainder interest in the trust.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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