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Establishing a Charitable Remainder Trust

There are many considerations for testators when deciding how to distribute their assets at death.  Once a testator decides who is to inherit their assets, the next question is how to accomplish the bequests – whether through a will or the creation of a trust. Many testators, after leaving some of their property to loved ones, wish to make a bequest to a specific charity.  Although charitable bequests can be made under a will, another effective method is to create a charitable remainder trust. Creating a charitable remainder trust satisfies the testator’s charitable intent and may also provide income or estate tax benefits. If you are beginning to plan your estate, or wish to make changes to an already-existing will or trust and have questions about whether a charitable remainder trust is appropriate for you, please contact a member of our wills and trusts legal team for an initial case evaluation.

What is a Charitable Remainder Trust? 

Charitable remainder trusts are irrevocable, tax-exempt trusts that are made up of two parts: the income interest and the remainder interest. The income interest is the income paid to the grantor (the individual who established the trust) or his or her designated beneficiaries. For example, if the trust is created during the grantor’s lifetime, he or she can retain sole access to the income generated by the trust. Once the grantor passes away, the income interest will go to the designated beneficiaries either for a certain period of time or for the duration of their lives.

Once the income interest terminates, which occurs after a designated number of years or when all the trust’s income beneficiaries pass away, the remaining assets (also known as the remainder interest) will go to a qualified charitable organization chosen by the grantor and specified in the trust document. A charitable remainder trust can also be created through a testamentary gift, in which case the trust would only be created after the testator’s death.

When Will I Receive Payments? 

Generally, there are two ways to receive payments from a charitable remainder trust. The first, known as an annuity trust, provides for an annual payment for a specific dollar amount determined at the time the trust is established. With an annuity trust, the grantor or beneficiaries will continue to receive the same payment annually regardless of how the value of the trust assets fluctuate.   Alternatively, the second method – a unitrust – pays the grantor and the beneficiaries a different amount every year based on a fixed percentage of the fair market value of the trust assets.

Financial Benefits  

Using a charitable remainder trust has a number of financial benefits for both grantors and their beneficiaries. For example, a grantor who establishes a charitable remainder trust during his or her lifetime will receive an income tax deduction at the time the trust is created.  Alternatively, if the trust was created under a will, the testator’s estate will benefit from an estate tax deduction. Additionally, any profit from the sale of investments within a charitable remainder trust is not subject to capital gains tax. One final consideration: charitable remainder trusts are irrevocable, which means they cannot be terminated (although grantors are permitted to change the remainder beneficiary to a different charity).

Call Our Atlanta Legal Team Today  

Please call MendenFreiman LLP at 770-379-1450 to speak with an experienced Atlanta wills and trusts attorney about your own estate planning options. We are eager to assist you throughout each step of the process.

Resources:

giftplanning.gsu.edu/charitable-remainder-trusts

giftplanning.emory.edu/charitable-remainder-trusts

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