When you are engaged in inheritance planning you are usually going to be drawing up a list of recipients, and of course the names of your loved ones will comprise that list. But many people feel as though they would like to include a charitable organization or organizations as well, and there are a number of estate planning vehicles that are commonly used to enable efficient charitable giving.
Many of them can provide you as the donor with some benefits in your own right, and one of these is the charitable remainder trust. These are especially useful if you are looking for a way to give something back in the form of appreciated securities while deriving income for yourself in the process.
With these vehicles you fund the trust and name yourself as the beneficiary if you want to receive distributions from the trust, but you can name anyone you want to as the beneficiary. You could also name yourself as the trustee. The beneficiary must receive regular, ongoing distributions from the trust of at least 5% and not more than 50% of its value each year.
The reason why funding the trust with appreciated securities is advantageous is because the transfer is not subject to capital gains tax. Future earnings are not taxable either since the remainder of the trust is going to be donated to a charity or other tax-exempt entity.
Through the creation of the trust you are also removing the value of the assets used to fund the vehicle from your estate, thus reducing its taxable value. In addition, the remainder value of the trust that will be passed along to the charity after it expires qualifies for a charitable deduction.
Charitable remainder trusts can provide the best of both worlds and they are ideal solutions for many people who would like to include philanthropic efforts as a part of their larger legacy.