There are many different legal instruments that can be utilized when you are planning your estate, and some of them are quite efficient as they achieve multiple objectives simultaneously. With this in mind, people who have a desire to give something back to charity while gaining some tax advantages and a source of ongoing income may want to consider the creation of a CRUT or charitable remainder unitrust.
With the charitable remainder unitrust you create a trust and name both a non-charitable and a charitable beneficiary. The non-charitable beneficiary must receive annuity payments that are equal to between 5% and 50% of the overall value of the trust every year. These payments can be made incrementally throughout the year but they can be made no less frequently than once a year. When you create the trust you set a term – say 10 years – and at the end of this term or upon the death of the grantor the charitable beneficiary assumes ownership of the remainder.
So the CRUT provides you with income for life if you choose to set it up in that manner, and it also enables you to satisfy your philanthropic urges. But in addition to these benefits there are also tax advantages that go along with the creation of a charitable remainder unitrust. The act of funding the trust – transferring your chosen asset into the trust – removes the asset from your estate, so you gain estate tax efficiency the moment you create the trust.
You are also entitled to a charitable deduction that is based on the valuation of the remainder interest, in other words the value of the asset that will be going to the charity after you receive your annual payments. Plus, if you were to fund the trust with appreciated securities you could have the trust sell them. Capital gains tax liability would then be spread out over the duration of the trust term, but if you were to have sold them when they were your own personal property, capital gains tax would be due all at once.
A qualified estate planning attorney can help you analyze the benefits and appropriateness of this powerful planning strategy.