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Using a Charitable Remainder Trust in Your Estate Plan

A charitable remainder trust is an excellent way to pass on assets from your estate to the charity of your choice, while also giving you and your beneficiaries a sizeable tax break. It’s an especially sound option for people who wish to make large donations to charities upon their death.

However, you should keep in mind that a charitable remainder trust requires you to give up legal control over your property. They are also irrevocable, and so once you have transferred property into the trust, there is no going back.

Setting up the trust

The process of establishing a charitable remainder trust is like that of setting up any other trust. First, you fill out the establishing paperwork with the assistance of an estate planning attorney. Once you do that, you can begin transferring the property you wish to donate to a charity. Any charity to which you leave assets must have tax-exempt status from the Internal Revenue Service.

The Trustee pays you (or someone else who you name) a portion of the income the trust generates for a certain number of years or the rest of your life. Upon either your death or the end of the set period, the remainder of the property goes to the charity you specify.

The benefits of a charitable remainder trust

Beyond the charitable benefits of this type of trust, there are some considerable tax advantages for the person who establishes it:

  • Income tax: You may take an income tax deduction, spread out over five years, for the total value of your gift to the charity. However, the value of the gift is not the value of the property—the IRS will deduct from that value the amount of income you get back from the property.
  • Estate tax: After the property has fully passed on to your charity of choice, it is no longer in your estate. Thus, it’s not subject to the federal estate tax. This makes a charitable remainder trust a particularly useful tool for people who are over the exemption limit for the estate tax, which is at $5.49 million for an individual as of 2017.
  • Capital gains tax: By using a charitable remainder trust, you can turn appreciated property into cash without having to pay capital gains tax on your profits. This is because charities do not have to pay capital gains taxes. If the charity sells your property, the proceeds stay in the trust and will not be subject to taxation.

Schedule Your Consultation with Our Experienced California Estate Planning Attorneys

Bartlett & Herrington, P.C. is a top estate planning law firm in California. Our attorneys help families set up living trusts, wills, power of attorneys, healthcare directives in Santa Barbara, Ventura and Montecito.

We also serve clients in estate planning matters, probate, elder law, retirement planning, asset protection and Veterans Affairs (VA) aid and attendance planning.

Schedule a planning session with our experienced attorneys today to learn how we can help you and your family: (805) 576-7693.

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