When you are taking stock of your legacy and considering the impact that you have made on the world the thought of charitable giving may enter your mind. Awareness of this possibility was raised during the summer of 2010 when there was a news story circulating about the so-called “billionaire challenge.” Bill Gates and Warren Buffett challenged the wealthiest Americans to give away half of their wealth over the course of their lives, touting the societal benefits of philanthropic giving.

Few people are in this financial stratosphere, and fewer still are in a position to give away half of their assets to charity and still provide for their families. However, there are some charitable giving instruments “for the rest of us,” and the charitable remainder unitrust (“CRT”) may meet that requirement.

With these trusts the ultimate beneficiary is a charity (or group of qualified charities). You also name a beneficiary who will receive annuity payments out of the trust on an annual basis. In most cases people who create a CRT will name themselves as the recipient of the annuity payments during their lifetime. You must take payments of at least 5% and no more than 50% of the trust’s fair market value each year for the duration of the term of the trust, which can be for a certain number of years or the rest of your life. At the end of the trust term the charity must receive at least 10% of the original value of the contribution into the trust.

In addition to providing you with a source of income while you ultimately satisfy your philanthropic urges, there are tax benefits to be gained through the creation of a charitable remainder unitrust. When you fund the trust you are removing those assets from your estate for estate tax purposes, and since you will be receiving annuity payments and leaving the remainder to charity no gift taxes are applicable. You are also entitled to a charitable deduction that is calculated based on the remainding interest’s present value. So, income tax benefits, estate tax reduction and satisfying charitable desires make the CRT an attractive estate planning strategy.

Larry Parman
Founding Attorney