During the summer of 2010 Bill Gates and Berkshire Hathaway Chairman and CEO Warren Buffett issued a challenge to the wealthiest individuals in the United States. They asked these people to make a pledge stating that they would ultimately give away half of their riches to charity over time. Buffett set an example by promising to give away practically all of his wealth eventually, and he has already given $8 billion to the Bill and Melinda Gates Foundation.
Though most people are not in a position to make such a pledge, and the creation of family foundations are not practical for the majority of Americans, a lot of people do have the desire to make a difference and give something back. These philanthropic urges can become stronger when you reach the latter portion of your life and are considering your legacy. Fortunately there are estate planning instruments that can enable charitable giving for “the rest of us,” and one of these is the charitable remainder unitrust or CRUT.
When you fund the trust you name a non-charitable beneficiary will receive annual annuity payments from the trust that must be between 5% and 50% of its overall value. In most cases the grantor will act as the non-charitable beneficiary and receive these payments. You also name a charitable beneficiary who will assume ownership of the remainder assets when the trust has expired or when the grantor has passed away. This remainder must equal at least 10% of the original value of the trust when it was created.
There are tax advantages that go along with the creation of a CRUT. When you create the trust you are removing assets from your estate and this reduces your estate tax liability. You also gain a charitable deduction that is based on the valuation of the remainder interest. And if you were to fund the trust with appreciated securities you could have the trust sell them rather than doing so yourself to spread out your capital gains tax liability over the duration of the trust term rather than having to pay the tax all at once.
Alan Augulis, Estate Planning Attorney
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