Estate Planning Using a Charitable Trust
Q: As I have looked into estate planning, I keep seeing information about Charitable Trusts. Can you give me your thoughts on them, and does Heaven's Family offer them?
A: A Charitable Remainder Trust (CRT) is the most common type of charitable trust. It is an irrevocable trust arrangement generally written by a specialized attorney in compliance with the Internal Revenue Code. You transfer assets into the trust and a beneficiary (usually you) receives distributions from the trust either (1) for the rest of your life or (2) for a specified number of years. Whichever is specified within the trust, when that specified time is reached, the remainder of the trust is distributed to a pre-determined charity or charities.
A CRT is generally advantageous when you have a highly-appreciated asset that must be sold to preserve its gains. For example: Let's say that you worked for Acme Products all your adult life and during those years you regularly purchased company shares. Let's say those shares cost you $72,000, but they are now worth $1,000,000. Because you are now in your retirement years, you want to sell your Acme stock and move your money into a safe, income-producing investment.
If you sell your Acme stock, you may have to pay $170,000 or more in capital gains tax on your stocks' appreciation (assuming a 15% federal and 3.3% state capital gains tax rate). If you contribute your Acme stock to a CRT, however, the trust can sell the stock and safely invest the proceeds without you incurring that $170,000 tax liability. In addition to receiving a steady flow of income for the rest of your life from the CRT, you will receive an immediate income tax deduction based on the estimated portion that will eventually be given to charity. (It should be noted that you will be required to pay capital gains tax on the portion of capital gains within the regular distributions you receive each year.)
Setting up and managing an appropriate CRT usually requires a qualified estate planner (usually an attorney and/or a financial advisor), so there are costs involved. Also keep in mind that CRTs are irrevocable, so the assets you contribute to the CRT will be permanently tied up in the trust.
When you speak to your qualified estate planner, make sure you ask about the two types of CRTs: (1) the Charitable Remainder Annuity Trust (CRAT) and (2) the Charitable Remainder Unitrust (CRUT). They differ in how regular distributions to you are handled, and dictate whether or not additional contributions can be made to the trust.
Heaven's Family does not have the expertise to set up or manage CRTs, but we are certainly qualified to be a remainder beneficiary of a Charitable Remainder Trust. Also, our knowledgeable partners at National Christian Foundation can provide professional direction to help you pursue a charitable trust for your estate planning needs.
David Warnock is happy to assist you with your questions regarding strategic stewardship. You can reach him at (412) 833-5826 or email him at DavidW [at] HeavensFamily [dot] org.