Charitable Remainder Trusts: The Pros and the Cons

Charitable giving has far-reaching effects. It can, for example, fund the fight against cancer and the discovery of treatments for macular degeneration or provide much-needed after-school activities for disadvantaged youth. For people who have a deep and abiding interest in the support of a specific cause, a Charitable Remainder Trust (CRT) can serve both altruistic and practical purposes. However, a CRT is not the most suitable estate and tax planning tool for everyone. Our Riverside County trust attorneys will help you decide if a CRT is appropriate for you and counsel you in the estate planning options that best serve your circumstances and goals.

What is a Charitable Remainder Trust?

A CRT is basically an agreement in which a donor irrevocably transfers specified assets to a trust that can be created either during the life of the donor or upon the donor’s death. Over the course of its existence, the trust will make payments to designated beneficiaries from its income — and when the trust term has ended, the remaining assets are given to qualified charitable designees.

The trustee

Any individual can serve as a trustee, including the donor. Institutions can also serve in that capacity and might be better suited to the complex task of administering the trust than an individual. The responsibilities of supervising and maintaining the trust are multifaceted and include the traditional role of the trustee as fiduciary, the management of trust investments and the administration of the trust. Failure to fulfill these obligations can subject the trustee to private action and official sanctions, and the trust might lose its tax-exempt status.

Advantages and disadvantages

The greatest benefits of this trust arrangement can be seen when the donor has a highly appreciated asset that does not provide income and the donor is ready to part with it. By donating that asset, the donor not only receives an income tax deduction, an exemption from current capital gains tax and a respite from gift and estate taxes under certain circumstances, they may also benefit from an income stream when the trust sells the asset. Most important, upon their death or the termination of the trust, the donor leaves a legacy for the benefit of others.

However, this arrangement is not for everyone. If the trust is irrevocable, its terms are difficult or impossible to amend, making its assets essentially inaccessible to the donor and not readily available for investment in business ventures. Its administration may be complex as well as legally and financially challenging. The costs of administration are such that careful analysis by California trust lawyers is necessary to determine whether the proposed assets will be sufficient to make the trust a viable alternative to other estate and tax planning vehicles.

Contact our team in the Coachella Valley today

Turn to Schlecht, Shevlin & Shoenberger, A Law Corporation for all your estate planning needs. Our attorneys include a bar-certified specialist in estate planning and trust and probate law, and our firm leverages decades of experience to help our clients protect and secure their assets.