There are those who have a tendency to identify the ills of our society and point fingers, exclaiming that “someone has to do something!” In many cases, you may be able to find that “somebody” looking back at you when you look into the mirror.
No one individual can do it all, but we can all do our part. When you are planning your estate you will invariably travel the highway of introspection in your mind’s eye and consider the totality of your legacy. This leads many people toward a desire to make a positive difference in the world at large and address some of the needs that exist through charitable giving.
There are a number of vehicles that can be used to accomplish this end, and one of them is the charitable remainder trust. With these instruments you identify the charity or tax-exempt entity that you would like to support, and they will receive a remainder of at least 10% of the initial contribution into the trust.
You get a charitable tax deduction for this remainder amount, and you also reduce the taxable value of your estate by the value of this initial contribution. In addition, you pay no capital gains tax on any appreciated assets you may have used to fund the trust, and future capital gains earned by the trust are not taxable either because the remainder is earmarked for charity.
Most donors name themselves as the beneficiary of the trust. The beneficiary must receive at least 5% and no more than 50% of the fair market value of the trust annually (though the distribution payments made each year can be broken up into more frequent intervals).
Charitable remainder trusts can provide the donor with the best of both worlds: a tax efficient source of income that satisfies his or her urge to make a difference though an act of philanthropy.