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Reviewing Legal Agreement

Charitable Trust Structures

Trust structures can provide control of assets with substantial tax benefits

What is a Trust?

A trust ensure your assets are managed according to your wishes, both during  your lifetime and after your death.

It is a legal contract between at least two parties: a grantor and one or more trustees.

Trusts help ensure your wealth is used in the way you'd like, but also can provide substantial tax efficiencies.

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Key Parties and Terms

The grantor is the person who has assets they would like a trustee to hold for the benefit of one or more beneficiaries.

A trustee is appointed to manage the trust for the benefit of the beneficiaries.

The beneficiary can be a child or relative, but also institutions such as charities.

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Charitable Remainder Trust

A charitable remainder trust allows you to retain an income stream for your family while donating to your favorite cause.

Tax exempt and irrevocable, they are designed to reduce the taxable income of individuals.  They operate by dispensing income to either the trustor or one or more named non-charitable beneficiaries for a specific period of time, after which they donate the remainder of the trust to one or more designated charitable beneficiaries.

Assets that can be donated to a charitable remainder trust include cash, stocks, real estate, private business interests, and private company stock.  The partial tax deduction a trustor receives is based on the:

  • Trust's type and term

  • Projected income payments to charitable beneficiaries

  • Interest rates set by the Internal Revenue Service that are assumed growth rates for the trust assets

Charitable Remainder Annuity Trust (CRAT)

Distributes a fixed annuity each year to their non-charitable beneficiaries.  This amount is always the same and must be at least 5% but no more than 50% of the assets in the trust.  They do not allow for additional contributions.

Charitable Remainder Unitrust

Distributes a fixed percantage based on the balance of the trust assets, which are revalued each year.  The annual amount will fluctuate, but, as with CRATs, it must be at least 5% but no more thatn 50% of the assets in the trust.  Unlike a CRAT, it does allow for additional contributions.

Charitable Lead Trust

A charitable lead trust is an irrevocable trust designed to provide financial support to one or more charities for a period of time, with the remaining assets eventually going to family members or other beneficiaries.

These trusts are often considered the inverse of a charitable remainder trust.  It can potentially provide benefits such as income tax deductions or estate or gift tax savings on assets ultimately passed to the individuals designated as remainder beneficiaries.  This strategy could be used for high earners who may have a drop off in income in the future.  A deduction could be received now for forgoeing income which is paid to a charitable organization, while the assets revert back to the donor, family or organization at a stipulated time in the future.


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