Charitable Remainder Trusts

A charitable remainder trust is similar to a charitable gift annuity, but you retain greater control over how the money is invested, who the trustee is and which charity ultimately benefits. The downside: A charitable remainder trust is more involved, and you’ll likely need legal help to set it up.

How does a charitable remainder trust work? You transfer assets to an irrevocable trust, which then pays you income for a fixed time period or until you die. All the income you receive will likely be taxable. The money that’s left in the trust then goes to the charity named.

A charitable remainder trust makes most sense if you can fund it with assets that have increased in value, such as stocks or real estate. By donating the assets, you avoid capital gains taxes and receive an immediate tax deduction, which is based on an estimate of the sum that the charity will eventually receive.

You have a variety of income choices. For instance, you might opt for a fixed annual amount, like you would receive from an annuity. Alternatively, your annual income might be set at, say, 5% of the beginning-of-year value of the assets you donated. That means your income will fluctuate from year to year—but, if the trust’s investments perform well, it might rise over time.

Sound too involved? You could opt for a charitable gift annuity instead. Some charities also have pooled income funds, which operate like charitable remainder trusts, but the charity assumes the administrative duties in return for a fee.

Next: Qualified Charitable Distributions

Previous: Charitable Gift Annuities

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