Charitable Remainder Trusts

Charitable remainder trusts are established through the transfer of assets (cash or securities) to a trust that will ultimately benefit a charity or charities. The donor and a second beneficiary, if desired, will receive a lifetime income and can also realize significant tax savings.

A charitable remainder annuity trust (CRAT) establishes the annuity payment to the donor of not less than five percent based upon the fair market value of assets when transferred to the trust. A charitable remainder unitrust (CRUT) establishes the payment, again not less than five percent, based upon the fair market value of the assets determined annually.

Donors prefer unitrusts to annuity trusts by a large margin -- nearly two to one. If the assets of the unitrust are managed prudently they can grow in value, and, therefore, provide a higher annual payment from year to year. Additional gifts can also be added to a unitrust and your unitrust payment will increase to reflect the added amount. The annuity trust, in contrast, cannot accept additional contributions.

A charitable trust document must be drawn by qualified legal counsel to insure it meets strict IRS criteria. Marmion can assist you -- with no obligation -- with names of qualified professionals.

In addition to an income for life, charitable remainder trusts provide tax savings. The donor will receive a tax deduction in the year of the gift in the minimum amount of 10 percent of the value of the assets contributed. Depending upon the annual payout percentage, the charitable deduction may be greater. The actual amount of the deduction is based upon the age of the donor and beneficiary, if any, and the annual payout rate.

Additional tax savings can accrue if the donor funds the trust with appreciated assets (such as securities or real estate) when the trust sells the appreciated assets the trust incurs NO TAX on the sale. This is one of the most desirable features of charitable remainder trusts as it allows one to sell appreciated assets for no tax cost and re-invest or diversity in other assets. In short the charitable remainder trust is a superb way to sell appreciated assets for no tax cost, increases one's cash flow and ultimately benefit one's favorite charity.

Trusts for All Occasions

Besides charitable remainder trusts, other trust instruments can address a wide range of estate planning issues: who and how heirs will receive an inheritance; protect assets for creditors; provide for a family member with special needs; help ensure your finances are taken care of even though you are declining physically and mentally; and, finally to avoid probate.

Contingent Trusts for Children: Couples with young children often establish trusts for children to manage assets and pay the children's expenses until they reach adulthood. Without such a trust, in the event of deaths of the parents, a "financial guardian is necessary which means the assets are controlled by the local probate court. In addition, the assets are then distributed to the children when they reach adulthood that is generally 18 in most states. Through a trust the assets can be ultimately distributed to the children at the ages specified.

Asset Protection Trust: One establishes an asset protection trust for his or her children at death, instead of leaving the assets outright to the children. The trust protects assets from the children and grandchildren's creditors. Assets in the trust are not distributed to the children. Instead, assets are left in trust under professional management. Typically, all of the income earned by the trust is paid to the children. In addition, principal may be paid (for a new home or college education, for example) at the discretion of the trustee. Asset protection trusts were featured in the August 2006 Ora et Labora. Additional copies are available.

Special Needs Trust: Trusts are not all about saving taxes. A trust can provide for dependent children or a special needs family member. For a family member with a disability a special needs trust can be structured to provide income not to exceed the government assistance threshold and thus remain eligible for these programs. Since government programs will often provide for support needs, a special needs trust provides for the non-support special or supplemental needs. These trusts assure funds are available for expenses not covered by government or private benefits. Examples of payments include special housing requirements; experimental medical treatments; purchase of entertainment devices such as televisions DVDs, etc., and travel for a special needs person and a companion.

Revocable Living Trust: One feature on a revocable living trust might address the issue of the individual's ability to manage his or her financial affairs. Through the trust, one or all of the children can be appointed trustees and perform all of the personal finance transactions the individual once did on their own.

A revocable living trust can also be used to avoid probate, an issue of some significance in some states, notably Florida, because of costs and time. Assets in a trust do not go through probate and do not become part of a public record.