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Protecting your assets through charitable remainder trusts

On Behalf of | Jul 5, 2024 | Trusts

Charitable remainder trusts (CRTs) offer a way to protect assets while supporting charitable causes. These trusts provide a unique opportunity to balance philanthropy with income generation. 

Understanding how CRTs work can help individuals make informed decisions about their financial future.

How charitable remainder trusts work

A charitable remainder trust allows a person to transfer assets into the trust. The trust then pays out a fixed percentage of its value to designated beneficiaries for a specified period, usually for life or up to 20 years. After the term ends, the remaining assets go to the chosen charity. This structure provides both income for the beneficiaries and a substantial donation to a charitable organization.

Benefits of charitable remainder trusts

Charitable remainder trusts offer several benefits. First, they provide a steady income stream to the beneficiaries. This can be particularly helpful for retirees or those needing additional financial support. 

Second, CRTs can offer significant tax advantages. Donors can receive an immediate charitable income tax deduction for the value of the remainder interest that will eventually go to charity. 

Additionally, assets transferred to the trust are not subject to capital gains tax when sold, allowing the trust to reinvest the full proceeds.

Setting up a charitable remainder trust in New York

Setting up a CRT involves several steps. Individuals must first choose the type of trust: a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT). A CRAT pays a fixed dollar amount annually, while a CRUT pays a fixed percentage of the trust’s value. 

Both types require drafting a trust document and selecting a trustee. Working with an experienced attorney or financial advisor ensures compliance with New York laws and maximizes the benefits of the trust.

Making the most of your charitable remainder trust

To make the most of a CRT, individuals should carefully select the assets to transfer into the trust. Highly appreciated assets are ideal, as their sale within the trust avoids capital gains tax. Additionally, choosing a reputable charity and clearly defining the trust terms helps ensure the donor’s philanthropic goals are met. Regular reviews of the trust’s performance and adjustments as needed can optimize income generation and charitable impact.

Charitable remainder trusts offer a powerful tool for balancing personal financial security with philanthropic endeavors. By understanding their benefits, individuals in New York can protect their assets while making a lasting difference.