St. Petersburg Charitable Remainder Trust Attorney
There are many types of trusts people can include in their estate plan. One of these is the charitable remainder trust (CRT). A CRT allows you to make donations to a charity you want to support. A CRT can also generate a regular source of revenue for yourself as the settlor, or for your beneficiaries, during the life of the trust. Below, our St. Petersburg charitable remainder trusts attorney explains how you can benefit from this type of trust below.
What is a Charitable Remainder Trust?
A charitable remainder trust is irrevocable, meaning you must relinquish control of the trust. Either a third party of the charity will act as the trustee of the trust. The trustee will manage the assets within the trust and invest the property to create income. Every year, the trust will pay a designated person a certain amount of revenue. The amount of revenue can be a certain percentage of the value of the trust, or it can be an annual fixed amount. CRTs cannot have a life of more than 20 years. After this time, the assets and property within a trust are distributed to the charity.
Benefits of a Charitable Remainder Trust
Using a charitable remainder trust as an investment tool is a very powerful strategy. A CRT can provide for an income tax deduction that is spread over a five-year duration for the value of the donation to the charity. It can be challenging to calculate the amount of the deduction. The value of the donation is not equivalent to the value of the assets or property within the trust. The IRS will deduct from the value the income you or your beneficiaries are likely to receive from the property. For example, if you donated $500,000 and you expect an income of $100,000, the gift value is $400,000.
Another one of the biggest benefits of a CRT is that it can turn property that has appreciated in value into cash without the need to pay capital gains tax on the income. Charities typically sell any assets that do not produce an income and use the proceeds to purchase property that will create an income for the beneficiaries or the settlor. Charities are not required to pay capital gains tax when they sell assets, and the proceeds can remain within the trust.
Obtaining Income from a Charitable Remainder Trust
Many people opt to receive a fixed annuity from the trust in case it earns an income that was lower than expected. You cannot change the amount once it is fixed and the trust is already effective. The income amount can be as much as you would like, but there are reasons settlors do not set amounts that are too high. The higher your payments, the lower the income tax deduction is. Higher payments can also chip away at the principal, which may result in the charity not receiving any assets.
Call Our Charitable Remainder Trust Attorney in St. Petersburg
If you would like to learn more about the estate planning tools that can help you and others during your lifetime and afterward, our St. Petersburg charitable remainder trusts attorney, David Toback, can help. Call us now at 813-252-7529 or contact us online to schedule a consultation and to learn more.