For many people being able to give something significant to charity is an important estate planning goal, and there is certainly a need for philanthropic efforts here in the United States and around the planet. Giving to the causes that you care about is rewarding in and of itself, but if you use the appropriate strategies for doing so you can also gain some benefits for yourself as a reward for your generosity. Starting a charitable remainder trust is a very good way to give something back while generating some ongoing income and gaining tax efficiency on multiple levels.
To get started you place assets into the trust and the charity that you select will become the trustee, making investments and otherwise managing the trust. You are required by the IRS to receive at least five percent of the value of the assets in the trust each year, but the exact amount is something that is determined when the trust agreement is drawn up. These payments can be a fixed amount each year, or based on a percentage of the value at the time the distribution takes place, and this latter arrangement is more commonly used. The duration of the payments can be for the rest of your life, or a prescribed number of years as stated in the terms of the trust. When you pass away, the charity assumes ownership of the remainder of the trust.
The ability to derive income from the trust is attractive, but as mentioned previously, there are tax advantages to charitable remainder trusts as well. For one thing, any appreciated securities that you may have used to fund the trust are not subject to capital gains taxes. You can also deduct the donation, minus the payments that you will receive out of the trust, from your income tax. And lastly, the value of your overall estate is diminished by the donation, and this will invariably reduce your estate tax exposure.
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