Getting Down to Basics
While it is true that planned giving is complicated, having a basic understanding of how a planned gift works can make the planned giving process smoother. In comparison to other planned gift vehicles i.e. donor-advised funds, split-interest gifts like charitable remainder trusts (CRTs) are more complicated. As such, the results can be disastrous if set up incorrectly. Before setting up a CRT, it is important that you understand the basic concept of this type of planned gift.
Generally, there are four primary parts to a charitable remainder trust. While that may not seem like much, these parts cover the lifespan of a CRT. With this in mind, here are the parts of a CRT:
Funding
Receiving Income
At Death
Supporting Charity
1.Funding
First, cash or non-cash assets are transferred into the trust. Doing this, removes the assets from your estate. As it is a charitable trust, you may receive a partial tax deduction for the assets put in the trust. Following this, the assets are invested. Depending on how the trust is setup, you may be able to choose how the assets are invested and who will manage the investment.
2. Receiving Income
Depending on your needs, a charitable remainder trust can disburse income on a quarterly, semiannual, and annual basis. Keep in mind that how income is defined in the trust agreement impacts the disbursements to you. For example, with a Net-Income Charitable Remainder Trust or NI-CRT, there are 3 different ways to define income. Each of these impact the income you receive from the CRT.
3. At Death
One of the benefits of a charitable remainder trust is its ability to disburse income to the donor or another beneficiary, for their lifetime. While a charitable remainder trust can be setup to disburse income for a set number of years, donors usually choose the lifetime income option.
When you pass away, the remainder in the trust is disbursed to the charitable beneficiary. Simply put, a charitable beneficiary is a qualified public charity. It is important to note that the charitable beneficiary is almost always irrevocable, meaning once the ink is dry, it is almost impossible to change outside of a courtroom.
4. Supporting Charity
As a result, charitable remainder trusts at Legacy have the family foundation, or donor-advised fund as the charitable beneficiary. This allows you to give grants to the qualified charitable causes and organizations that you already love and support. Using your family foundation as the charitable beneficiary gives you the flexibility to: Add charities and causes that you grow to love over your lifetime Make changes if charities that you previously supported make organizational or mission changes that no longer align with your personal values
All Things Considered
All things considered, when understood and set up correctly, a charitable remainder trust can be a blessing to you and those charities that you support. Understanding how complicated planned gifts work will help you decide which planned gift vehicle is right for you.
What questions do you have about planned giving? Contact us or chat with us today!
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