Bay Area Estate Planning Attorneys on What You Should Know About Establishing a Charitable Remainder Trust

You’ve spent a lifetime working to care for yourself and your family. When you reach your golden years, you may wonder what it is you’ll leave behind. What will your legacy be, and what can you do to give back to those who have enriched your life?

One answer our Bay Area estate planning attorneys may suggest is establishing a charitable remainder trust. A charitable remainder trust allows you to donate to causes you care about while simultaneously generating income for yourself or the beneficiaries you designate. However, before you rush to create a charitable remainder trust for your estate, review some of these need-to-know facts.

How Does a Charitable Remainder Trust Work?

A charitable remainder trust is established by a donor, typically as a part of their estate plan. The donor transfers property, assets, or cash into the trust. The trust then pays income to at least one named beneficiary. These payments continue for a specified amount of time, up to 20 years, or for the life of the noncharitable beneficiaries. At the end of the payment term, whatever remains in the trust will be donated to one or more qualified charitable organizations.

There Is More Than One Type of Charitable Remainder Trust

There are two distinct types of charitable remainder trusts. The first is an annuity trust. In an annuity charitable remainder trust, the trust pays a specific dollar amount to beneficiaries each year. This fixed amount must be at least five percent but no more than 50 percent of the value of the property held in the charitable trust.

The second type of charitable remainder trust is called a charitable remainder unitrust. This type of trust fund pays out a percentage of the value of the trust each year to beneficiaries. The payment from this trust is variable because the fair market value of the assets in the trust is recalculated each year, but the same percentages apply as with the annuity trust.

A Charitable Remainder Trust is Irrevocable

According to the Internal Revenue Service, assets placed in a charitable remainder trust cannot be taken back for any reason, meaning a charitable remainder trust is a form of an irrevocable trust. This type of trust is not as flexible as other trust funds. However, assets held in an irrevocable trust are not considered part of your estate, meaning they are not subject to probate or estate taxes.

Payments from a Charitable Remainder Trust are Taxable

The beneficiaries of charitable remainder trusts should be prepared to pay taxes on the payments they receive from the trust. All payments from a charitable remainder trust are taxable. On the other end of the spectrum, contributions from a donor made to a charitable remainder trust may qualify for a partial charitable deduction.

 Speak to our Bay Area Estate Planning Attorneys

If you are interested in establishing a charitable remainder trust, speak with our experienced Bay Area estate planning attorneys. We can walk you through the steps necessary to create a charitable remainder trust and review the pros and cons of your unique situation. To schedule an appointment, call 408-889-1290.