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Charitable Remainder Trusts

Elder & Estate Planning Law in Pittsburgh

Charitable remainder trusts are regulated under IRS Code § 664. Under this section, you may have the ability to establish a special, irrevocable trust to distribute intermittent funds to a non-charitable beneficiary for a specified amount of time. When the trust is established, it will distribute a predetermined percentage of its total assets to the beneficiary on a regular basis until it ends, after which the reminding funds will be donated to charity.

Most Charitable remainder trusts end when the settlor passes away, but they can be set up for a predetermined number of years as well. The beneficiary may receive funds annually, but the trust is not limited to yearly payments; more frequent payments are acceptable as well. The beneficiary cannot receive more than 50% of the assets in the trust and no less than 5% of the assets in the trust at each payment. For example, you may decide to receive 10% of the trust's assets annually for the duration of your lifetime. When you pass away, the enduring funds will be given to charity.

Charitable remainder trusts are defined by the following basic characteristics:

  • Potential partial tax deduction based on the future charitable contribution
  • Accepts a wide variety of financial assets
  • Must be maintained of a period of time
  • Can provide income for lifetime or a fixed number of years (no more than 20)

After the charitable remainder trust is established, you cannot change the income beneficiaries. They are permanent, but certain provisions may allow you to add a contingent beneficiary while drafting the trust.

Tax Considerations

Any money give to charity through a charitable remainder trust is eligible for unlimited gift and estate tax deductions. Deductions are based of the present value of the trust, but you may generate estate or gift tax on the value of the retained interest if the money is given someone other than the trustor, a charity, or the trustor's spouse. Your trust may produce transfer tax if it is disqualified.

Trustee Responsibilities

The trustee is responsible to administer and operate the charitable remainder trust. The trustee must avoid any actions that might be interpreted as self-dealing and must balance the best interest of the remainder beneficiaries and the trusts' income. Specifically, the charitable remainder trustee must communicate and report to the trust recipients, manage trust assess, adhere to private foundation rules, make sure that the trust remains tax-exempt, file fiduciary tax returns, receive and disburse revenue, and establish the trust's annual annuity amounts.

Traditional Retirement vs. Charitable Remainder Trusts

Some people establish a charitable remainder trust in place of a traditional retirement plan. Charitable remainder trusts are not regulated by the U.S. Department of Labor. In other words, a trust may not be subject to the same restrictions and regulations as a typical retirement plan. Additionally, charitable remainder trusts do not have any earned income requirements or contribution limitations; they accept a broad-range of assets. Trusts are not subject to exorbitant taxes, are not integrated with the Social Security system, and do not have any retirement age limitations. Charitable remainder trusts are fully portable as well.

Contact a Pittsburgh Estate Planning Lawyer

If you have questions about your estate plan, our Pittsburgh estate planning attorney can help. If you are seeking a reasonable retirement alternative, a charitable remainder trust could be the answer to your estate planning needs. Contact Temple & Frayer Law today to see what an AV Preeminent® rated lawyer from our firm can do for you. With Temple & Frayer Law on your side, you can have peace of mind about your finances and your future.

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