VanNess & VanNess, P.A.

Shedding some light on charitable remainder trusts

Whether we realize it or not, the majority of us have favorite charities to which we prefer to lend our support. Indeed, some of us may make a small annual contribution to a particular animal shelter, school or center for the disadvantaged.

What happens, however, when a person suddenly finds himself or herself ready, willing and able to make what could be classified as a much more substantial gift to their charity of choice? 

While they may want to enjoy the instant satisfaction that comes from simply writing out a check, experts indicate that there are perhaps better ways to go about making such a large donation. For example, they indicate that people may want to consider creating what is known as a charitable remainder trust.  

What is a charitable remainder trust?

A charitable remainder trust is essentially an irrevocable trust that provides the trustor (i.e., the person who creates the trust) with a regular source of income, while at the same time providing a large donation to their preferred charity and realizing substantial tax savings.  

How is a charitable remainder trust established?

In general, the trustor -- typically with the help of an attorney -- will set up the trust and transfer all of the property (i.e., the intended donation) into it.

The trustee, meaning the entity in charge of managing, investing and generally safeguarding the trust funds, will be none other than the person's IRS-approved charity of choice.

How does the aforementioned regular source of income come into play?

In accordance with the terms of the trust, the charity serving as trustee will regularly pay a portion of the income generated by the trust to either the trustor or someone of their choosing. These payments will last for either a predetermined number of years or up until the death of the trustor.

What happens when the trustor dies?

Once the trustor passes, the trust ceases to exist and the remainder of the trust property will go to the charity.

We will continue to examine this topic in future posts, exploring the tax advantages offered by a charitable remainder trust.

If you have questions about creating a trust or concerns over trust administration, consider speaking with an experienced legal professional as soon as possible to learn more.

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