Using Charitable Trusts to Reduce Income Tax, Provide For Retirement and Provide For Your Children
How would you like to simultaneously provide for your retirement and and receive a large charitable tax deduction? How would you like to simultaneously provide for your children and receive a large charitable tax deduction? In the universe of charitable planning there are two tax advantaged vehicles that will allow you to accomplish these two worlthwhile objectives.
They are charitable trusts known as a Charitable Remainder Trust (CRT) and a Charitable Lead Trust (CLT).
Creating Retirement Income Through a CRT: A CRT can provide you with an annual retirement stream of income for life.
When you die the assets remaining in the CRT are transferred to a qualified charity of your choosing.
Two types of CRTs are typically used to accomplish this.
The Charitable Remainder Annuity Trust (CRAT) and the Charitable Remainder Unity Trust (CRUT).
A CRAT pays a fixed amount each year to you for retirement while a CRUT pays a fixed percentage of the trust assets each year to you.
In order to accomplish these objectives the IRS requires you to follow certain rules.
CRT Rule #1: The annual annuity you receive each year must be at least 5% (but no more than 50%) of the trust assets.
CRT Rule#2: The terms of the trust cannot exceed the lessor of 20 years of the grantor's (you) life expectancy.
A CRT is organized as a tax exempt trust.
It is not subject to income tax.
When you donate assets to the trust you receive a current year charitable tax deduction equal to the actuarial value of the remainder interest.
Once the assets are inside the CRT they may be sold without any of the gain being subject to tax.
The only tax you pay is on the retirement distributions you receive each year from the CRT.
Providing For Your Children Through a CLT: A CLT creates an annual annuity stream that is paid to a qualified charity of your choosing for a fixed term.
Any assets remaining after the expiration of this term are distributed to you children or heirs.
Unlike a CRT, a CLT is not a tax exempt trust.
This means that all income earned by the CLT is taxable to the Grantor (you) each year.
The benefits of a CLT include a current year charitable contribution deduction, a reduction in your estate tax and appreciation of trusts assets outside your estate.
Your children will receive what is left in the CLT which can then be used to meet their future living needs.
Like a CRT, a CLT comes in two flavors: a Charitable Lead Annuity Trust (CLAT) and a Charitable Lead Unit Trust (CLUT).
A CLAT pays a fixed amount each year to your charity while a CLUT pays a fixed percentage of the trust assets each year to your charity.
If you think you may be a candidate for charitable planning please reach out to a CPA and/or an Estate attorney who specializes in Estate planning.
They are charitable trusts known as a Charitable Remainder Trust (CRT) and a Charitable Lead Trust (CLT).
Creating Retirement Income Through a CRT: A CRT can provide you with an annual retirement stream of income for life.
When you die the assets remaining in the CRT are transferred to a qualified charity of your choosing.
Two types of CRTs are typically used to accomplish this.
The Charitable Remainder Annuity Trust (CRAT) and the Charitable Remainder Unity Trust (CRUT).
A CRAT pays a fixed amount each year to you for retirement while a CRUT pays a fixed percentage of the trust assets each year to you.
In order to accomplish these objectives the IRS requires you to follow certain rules.
CRT Rule #1: The annual annuity you receive each year must be at least 5% (but no more than 50%) of the trust assets.
CRT Rule#2: The terms of the trust cannot exceed the lessor of 20 years of the grantor's (you) life expectancy.
A CRT is organized as a tax exempt trust.
It is not subject to income tax.
When you donate assets to the trust you receive a current year charitable tax deduction equal to the actuarial value of the remainder interest.
Once the assets are inside the CRT they may be sold without any of the gain being subject to tax.
The only tax you pay is on the retirement distributions you receive each year from the CRT.
Providing For Your Children Through a CLT: A CLT creates an annual annuity stream that is paid to a qualified charity of your choosing for a fixed term.
Any assets remaining after the expiration of this term are distributed to you children or heirs.
Unlike a CRT, a CLT is not a tax exempt trust.
This means that all income earned by the CLT is taxable to the Grantor (you) each year.
The benefits of a CLT include a current year charitable contribution deduction, a reduction in your estate tax and appreciation of trusts assets outside your estate.
Your children will receive what is left in the CLT which can then be used to meet their future living needs.
Like a CRT, a CLT comes in two flavors: a Charitable Lead Annuity Trust (CLAT) and a Charitable Lead Unit Trust (CLUT).
A CLAT pays a fixed amount each year to your charity while a CLUT pays a fixed percentage of the trust assets each year to your charity.
If you think you may be a candidate for charitable planning please reach out to a CPA and/or an Estate attorney who specializes in Estate planning.
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