Generally, trusts have been used for financial planning, but the truth is that many trusts can offer you advantages that you can enjoy throughout your lifetime. A Charitable Remainder Trust is one such trust. CRT is becoming increasingly popular as a way to significantly decrease your taxable income, support your favourite charities or organizations, and even generate a continuous stream of retirement income.
How Do Charitable Remainder Trusts Work and Make Money in Retirement?
A charitable remainder trust is a sort of “split-interest” giving vehicle, meaning that the trust’s income is divided between two recipients: the initial recipient (you or someone else you select) and a charitable organization.
The donor, the person who creates the trust first adds funds to the trust. This can include anything from cash to stocks to real estate to artwork. Typically, you’ll like to offer something that has the potential to increase in value, but then again, it’s preferable if the asset has already gained significantly.
The trust’s rules are established after that. That’s where you determine how much yearly income you want yourself or someone recipients to obtain from the trust (at least 5% of the fair market value of the trust’s funds), how long you want the trust to last, which can be any amount of years up to 20, or the rest of your life, and how much you want to give to the charities of your selection when the trust expires (at least 10% of the fair market value of the trust’s funds).
The trustee then assesses the fair market value of the funds and effectively takes over possession of them after the funds have been donated and the criteria have been established. To cover your income stream, the trustee sells a share of the funds, and the proceeds are given to you.
Finally, any remaining funds are distributed to the charity or charities you specify as recipients when the trust ends.
The Benefits and Drawbacks of Charitable Remainder Trusts
Benefits
Charitable remainder trusts can let you extend the realisation of a capital gain on gratefully received funds over several decades while still having access to the money from the sale. These trusts also provide a constant stream of annual income, which you may need in retirement.
Drawbacks
However, there are some potential drawbacks to forming a charitable remainder trust. When you put resources into a trust, you lose a lot of the control you’d have if you divided them up through a will or another manner. The terms of the trust can’t be changed since it’s permanent; once they’re set, they’re set.
Conclusion
CRTs are a fantastic opportunity to give back a piece of your assets to the causes you care about. After you fund the trust, you can deduct a portion of your taxable income as a charitable contribution, and this computation is determined by the amount you expect to transfer to the charity of your choice whenever the trust ends. There are several advantages to establishing a charitable remainder trust, and it is ultimately a decision that must be made based on your unique circumstances.