Charitable Remainder Trust
A charitable remainder trust is an estate planning device through which property is placed in a trust for a charitable organization, but the owner of the property retains possession of it while living.
The charitable remainder trust is useful in several ways: it helps a charitable organization of the grantor’s choice, and it reduces the tax burden on the grantor’s estate.
Essentially, it allows a stock portfolio (or other highly appreciated property, such as real estate) to be donated to a charity for the life of the grantor. The income from the stock portfolio continues to go to the grantor, which is reported to the IRS as taxable income. The donation, however, is tax-deductible. If the grantor does not need the income, it can stay in the trust tax-free and be deferred until a later year. This eliminates capital gains taxes on highly appreciated assets, such as stocks. It can also reduce the estate tax your heirs might have to pay after your death by up to 50%.
However, net distributions must amount to at least 5%. This is often used as a retirement plan, since income can be deferred until retirement.
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Last Modified: 07-07-2010 03:36 PM PDT
