Many of my clients like the idea of leaving bequests to favorite charities in their wills, but as I have explained, instead of leaving money to a charity in your will, you can put that money into a charitable remainder trust and collect income while you are still alive. Charitable remainder trusts have many other advantages, including reducing your income and estate taxes and diversifying your assets.

A charitable remainder trust is an irrevocable trust that provides you (and possibly your spouse) with income for life. You place assets into the trust and during your lifetime you receive a set percentage from the trust. When you die, the remainder in the trust goes to the charity (or charities) of your choice.

A Charitable Remainder Trust has many benefits:

  • At the time you create the trust, you can receive an income tax deduction for charitable giving. The standard deduction in 2024 is $14,600 for individuals and $29,200 for couples. This means that if your charitable contributions along with any other itemized deductions are less than $14,600 a year, the standard deduction will lower your tax bill more than itemizing your deductions. Giving a large sum of money to a charitable remainder trust is a good way to get the deduction.
  • Any profit from the sale of investments within the trust is not subject to capital gains tax, which means the trustee may have more freedom in managing the assets.
  • When you die, the assets in the trust will pass outside your estate and not be subject to any Federal Estate Tax.

One issue to consider is that a charitable remainder trust is irrevocable, meaning once you create the trust, you can’t cancel it. While you can’t revoke the trust, you may have the ability to change the beneficiary if you decide to give to a different charity. You may also serve as trustee, giving you control over how the trust assets are invested. In addition, note that any income you receive from the trust will be subject to income taxes.

Although the holiday season has ended, giving to charity is not a seasonal occurrence. A Charitable Remainder Trust may also become a valuable estate planning tool when many of the tax laws that came into effect in 2018 will end at the end of 2025.

Be Educated! Be Proactive!