Scranton Charitable Remainder Trusts Lawyer
Charitable remainder trusts (CRT) are irrevocable trusts that may create a potential income stream, listing you, or other beneficiaries, as the trust’s donors. The remainder of donated assets will go to your requested charities.
CRTs can convert a highly appreciated asset like real estate or stock into lifetime income. This will help reduce your immediate income taxes and real estate taxes when you pass away. There are no capital gains to pay when the assets are sold. The added benefit is that it helps one or more charities that are important to you. Do not hesitate to consult with one of our experienced Scranton charitable remainder trust lawyers at Haggerty Hinton & Cosgrove today. We are ready to assist you.
How Charitable Remainder Trusts Work
Start by transferring the appreciated asset into an irrevocable trust. This will remove the asset from the estate, which is why there are no estate taxes due upon death. In addition, you receive the immediate benefit of a charitable deduction on your income tax. The partial income tax deduction will vary based on the type of trust, IRS interest rates, the projected income payments, and the trust’s term.
The trustee will then sell the asset at full market value and reinvest the proceeds into other income-producing investments or activities. You will pay no capital gains and the trust will pay you an income for the rest of your life. Depending on the trust set-up, payments can be received monthly, quarterly, semi-annually, or annually. The IRS rules state that the annual annuity has to be at least five percent, but can’t be more than 50 percent, of the assets in the trust.
You aren’t required to take income right away; you can choose to take the income tax deduction immediately but postpone receiving any income until a later time. After you pass away, the trust’s remaining assets will go to your chosen charities. This is why it’s called a charitable remainder trust.
Types of Charitable Remainder Trusts
There are two main types of charitable remainder trusts available:
- Charitable Remainder Unitrust (CRUT): A CRUT will distribute a fixed percentage of the trust, which is based on the trust assets’ balance that is revalued on an annual basis. Additional contributions can be made in a Charitable Remainder Unitrust.
- Charitable Remainder Annuity Trust (CRAT): A CRAT distributes a fixed annuity amount every year. There is no option to add contributions with a Charitable Remainder Annuity Trust.
What Type of Assets Can Be Donated to a Charitable Remainder Trust?
There are several different types of assets that can be donated to a charitable remainder trust. These include:
- Publicly traded securities
- Real estate — real estate with a mortgage typically won’t qualify but you could opt to pay off the loan
- Certain types of closely held stock, excluding S-Corp stock
- Some types of other complex assets
The best asset choices are ones that have appreciated in value a significant amount since they were originally purchased.
Retaining a Pennsylvania Estate Planning Lawyer
You can opt to be your own trustee, but you have to make sure it’s administered properly. If not, you are at risk to be penalized and/or lose the tax advantages. Some people prefer to choose a corporate trustee who has the necessary experience managing trust assets. It’s wise to interview several potential trustees and look at their investment performance records.
If you have questions about charitable remainder trusts, or need assistance setting one up, it’s important to speak with a Pennsylvania estate planning attorney. Contact the team at Haggerty Hinton & Cosgrove, LLP at 570-354-5205 to schedule a consultation. Let one of our skilled attorneys help with all your estate planning needs.