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A Winning Charitable Strategy

Geoge H. W. Bush

"We can find meaning and reward by serving some higher purpose than ourselves, a shining purpose, the illumination of a Thousand Points of Light…we all have something to give." George H. W. Bush

If you have charitable intentions, is it better to make provisions for those charities in your trust or will or would be better to see the charity use the money during your lifetime—when you could get some personal gratification from it, not to mention the big income tax deduction!

Whether to leave it now or leave it later that is the question that some experts are suggesting has an easy answer.  They are assuring us that we need not be too concerned that providing money now to our favorite charity would not leave us short on funds for living expenses now.  Just how can they be so certain of this? The answer lies in a strategy known as the charitable remainder trust in which you transfer the money that you were planning on leaving to charity at your death to this type of trust now. With a charitable remainder trust, you'll retain an income from the trust and whatever principal that's left when you pass away would go to the charities designated in the trust. The income would be a fixed percentage of the initial contribution to the trust (a "charitable remainder annuity trust" or "CRAT") or a fixed percentage of the value of the trust as of the last day of the prior year (a "charitable remainder unitrust" or "CRUT").

The nice thing about using a CRAT is that you'll know the amount of the income each year. Contrast that with a CRUT, where you would have the opportunity for the income to grow if the assets of the trust experience growth in excess of the payment.

In addition, if the return on the assets isn't great enough, you could deplete the assets of the trust with a CRAT because your income isn't dependent on the amount of assets in the trust. You'd have that same issue if you didn't put the assets in the trust but continued to take the same income—an income amount not supported by the investment return.

A CRUT sets your income as a percentage of the value of the account each year. If the account decreases, your income the following year would be adjusted accordingly by the normal operation of the trust. As a result, the income wouldn't deplete the trust, but it might get pretty small at some point with continual investment underperformance.

Ok, now lets' talk about that income tax deduction for creating the trust. This deduction can be spread over six years if your income isn't high enough to use the deduction in one year. Cha-ching, that's extra money to enjoy today! What's more, you can also be the trustee of the trust, so you are still able to control how the money is invested.

Reference: Kiplinger's (June 2016) "Are You Losing Big Tax Savings on Your Charitable Bequests?"

 

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The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.