When most people start out in their professional lives, they likely never envision themselves being able to give more than a nominal amount to a favorite charity. After all, there are student loans, mortgage payments, credit card bills and, of course, child-related expenses to consider.
As the years pass, however, people often start to see their income grow as a result of promotions, new employment opportunities or going back to school. They may also see their net worth grow through shrewd investments and prudent financial decisions.
Indeed, after the passage of 30-40 years in the working world, people might find themselves doing well and even in a position to contribute more than just the $50 annual donation to the charity that is close to their hearts.
This is perhaps where the idea of executing a charitable remainder trust might come into play, meaning an estate planning instrument that facilitates the making of a considerable gift to charity while also providing the trustor (i.e., the trust creator) and their heirs with considerable tax benefits.
Charitable trusts: the basics
When a charitable remainder trust is created, the trustor must first identify all the property that they wish to donate to charity and transfer ownership of it to the trust itself. It's important to understand that a charitable remainder trust is irrevocable, meaning once it takes effect, the property used to fund it cannot be taken back.
The trustee of the charitable remainder trustee, meaning the person or entity tasked with investing, safeguarding and managing the trust assets, is the IRS-approved charitable organization to which the individual wants to give the trust property.
Depending upon how the charitable remainder trust is set up, the charity will then pay either the trustor or a designated individual a portion of the income generated by the trust assets for a set number of years or until the trustor's death. Once the trustor passes away, whatever assets remain in the trust will go to the charity.
We'll continue this discussion in a future post, exploring more about the tax advantages of a charitable remainder trust.
In the meantime, if you would like to learn more about establishing a charitable remainder trust or creating a comprehensive estate plan, consider speaking with a skilled legal professional.