Creating Charitable Trusts during the Estate Planning Process

As the Baby Boomer generation continues to age, there are many things that they wish to accomplish with their money and many people whom they wish to see receive the benefits of these funds, even after they are gone.  This is why charitable remainder trusts are so important during the estate planning process in order to provide a means by which a person can generate an income from property while having that property benefit a charity after he has died.

A charitable remainder trust is a very specific estate planning tool where there is a distribution of assets to a variety of beneficiaries during the life of and after the death of the benefactor.  The distribution typically happens on an annual basis and there must be at least one recipient that is not a charitable organization.  The term of the distributions can be for a set time, such as ten years, or it can span the length of a specific person’s life.  However, there must be one or more designees for the irrevocable remainder trust, specifically charitable organizations. 

A person normally establishes a charitable remainder trust with the intention of benefitting from the trust during his or her lifetime.  In addition to creating a trust that eventually will benefit one or more charitable organizations, the individual who establishes the trust gets the tax benefits during his lifetime.  Most charitable trusts are established with the individual who set up the trust and his or her family members being designated to receive distributions over the course of their lives.  Pursuant to the regulations of the Internal Revenue Service (IRS), there must be a distribution of at least five percent of the trust each year in order to receive the tax benefits.

Establishing the Trust

In order to establish a charitable remainder trust, the person transfers property into the trust that he intends to benefit a charitable organization.  The trust then needs to be approved by the IRS, which typically grants it the status of being tax-exempt.  The charitable organization then oversees the trust, managing specific types of investment vehicles while investing funds.  It then oversees the distribution of the allocation for the individual establishing the trust and/or other named beneficiaries.  For example, the trust may be established so that the person receives the income generated by the investment or he may set a specific amount of money to be paid each year, such as $10,000.  It is important to remember that once the trust is in place, it cannot be modified, so it is important to establish the parameters that will work for the individual.  The property will transfer to the charity upon the death of the individual who established the trust or after a specified period of time.

The fact that the property transfers to the charity at the termination of the trust means that there are no estate taxes because the property is not part of the estate at the time of the decedent’s death.  One of the other major tax advantages is the fact that a person can use this mechanism as a way to avoid capital gains taxes while obtaining the benefit of the property.  One of the times that this is a real benefit is if a person acquired a stock or real property for a very low price and then the property significantly increased in value.  This increase would result in capital gain taxes.  However, by transferring the property into a charitable trust, the individual is able to avoid the tax liabilities while benefiting from the distributions during his lifetime.

The Crisp Law Firm, PLLC Works with Clients to Develop the Right Estate Plan

Estate planning can accomplish many things, including maximizing revenue for an individual during his or her lifetime while minimizing tax consequences for his intended beneficiaries.  The dedicated and knowledgeable New Hampshire Estate Planning Attorneys at The Crisp Law Firm, PLLC have the skill and commitment to our clients to obtain the right outcome in their estate planning goals.  To schedule an initial consultation with our seasoned New Hampshire Estate Planning Lawyers, call us at (603) 225-5252 now.