by Larry Hunt, Esq.
Have you ever considered making a sizable donation to a charity, but were unsure about doing so because you may want access to those funds at some point for yourself or a loved one? If so, perhaps you should consider a charitable remainder trust, which offers a “have your cake and eat it too” scenario for donors.
A charitable remainder trust allows a donor to find a middle ground between making a donation and retaining control and access to their money. The interest in the assets contributed to the trust is split between the current interest – the money “now,” and a remainder interest – the money at some point in the future. The trust will create a present term. That term can be based on a number of years or can be based on the lives of the donor or certain members of the donor’s family. During that term, payments are made regularly to a “recipient”- the person designated by the donor to receive those payments. For example, you could decide that you would like your spouse to receive the distributions from the trust until their death. They would receive a regular income stream for the remainder of their life. At the end of the term, which is the conclusion of the term of years or at the recipient’s death, the assets are transferred to the remainder beneficiary – the charity. Under this arrangement, the donor retains the use of the assets, or provides their use to a loved one, and the charity receives a generous gift at a point in the future. Everyone is taken care of.
There are different types of charitable remainder trusts, and the type to pursue often depends on the donor’s personal situation. A charitable reminder unitrust (often referred to as a “CRUT”), calculates the value paid to the recipient each year as a percentage of the trust assets in that given year. The payment will therefore rise and fall with the value of the trust. A charitable remainder annuity trust (“CRAT”) determines the value as of the date of creation of the trust, lending more stability to the anticipated payments to the recipient. As you can imagine, there are subsets within these types which allow donors to conform to their particular financial and tax circumstances. Determining which form of charitable remainder trust to use therefore requires careful consideration of each donor’s unique circumstances.
Since the donor is making a charitable gift, certain income, gift, and estate tax charitable deductions may be available, depending on the form of the trust. This is true even though the charity may not receive any benefit for a period of time. Given the inevitable rise and fall of the securities markets, and other future factors that will necessarily impact the value of the ultimate remainder interest passing to charity, it is impossible to determine with accuracy the value of the charitable gift and therefore the amount of the deduction available. However, provided the trust is drafted in compliance with very specific regulations set forth by the IRS, the value of the charitable gift can be calculated using certain prescribed interest rates and actuarial tables, which is acceptable to the IRS as a charitable deduction.
If you are interested in learning more about how to open a charitable remainder trust, please contact the SouthCoast Community Foundation at 508-996-8253 or inquiry@southcoastcf.org.
Larry Hunt is an attorney with Pierce Atwood LLP. His practice is focused on estate planning and estate and trust administration. He works closely with many clients on the South Coast. He can be reached at lhunt@pierceatwood.com.