A Publication of WTVP

Generosity and philanthropic motives are important factors behind most charitable giving. However, they’re often not the only factors. Many investors also may be motivated by the significant tax, investment, and estate planning advantages associated with the making of charitable gifts through a charitable remainder trust.

If you’re an investor in your 50s or older, nearing—or already in—retirement, and if you currently own highly appreciated securities, you may wish to consider a charitable remainder trust to take advantage of the tax benefits provided by such a trust. Through a charitable remainder trust, you may receive:

How a Charitable Remainder Trust Works

A charitable remainder trust is created to provide lifetime or term income payments to you and/or your family members, while the remainder is eventually payable to a qualified charitable organization. Your payments, subject to income tax, may be an annual fixed-dollar amount (an annuity trust) that’s equal to a percentage of this trust’s initial value. Or they may be variable annual payments (a unitrust) equal to a percentage of the value of the trust fund. In this case, the fund is revalued each year.

Because a charitable remainder trust is tax-exempt, appreciated assets transferred by you to the trust may be sold by the trustee free of immediate capital gains taxes. Assets in the trust may then be reinvested in a high-quality diversified portfolio, which can potentially generate increased income.

Another benefit a charitable remainder trust can provide you is a charitable income tax deduction in the year you fund your trust. Keep in mind your deduction will be less than the total value of the trust assets if you or other beneficiaries are to receive payments from the trust.

An additional tax advantage provided by a charitable remainder trust is that assets transferred to the trust won’t be counted as part of your estate. This helps reduce the value of your estate, which could reduce potential future estate taxes. Federal and state estate taxes range between 37 and 49 percent on taxable estates valued at $1 million or more for 2003.

Wealth Replacement

Many individuals interested in establishing a charitable remainder trust ask about leaving assets to heirs. While assets in the charitable remainder trust must go to the charity upon the death of the surviving beneficiary, the increased cash flow and tax savings that result from the trust may be used to purchase life insurance in an irrevocable life insurance trust. With a properly structured life insurance trust, premiums are paid with dollars that would have gone to taxes, proceeds are outside the estate and aren’t subject to estate or inheritance taxes, and proceeds are received by your beneficiaries income tax-free.

Please keep in mind a charitable remainder trust is irrevocable. Assets in the trust will eventually go to your designated charity. Consult your tax and legal advisors to be sure a charitable remainder trust fits into your overall estate plan. If it does, you may enjoy significant tax, investment, and financial benefits, as well as leave a lasting legacy to your favorite charity. IBI