How to Set Up a Charitable Remainder Trust

A charitable remainder trust is a tax-exempt, irrevocable trust where assets (property or money) are donated to a qualified charitable organization. It is a way for the donor to reduce income taxes and contribute to a worthy cause at the same time.

Instructions

Become Informed About Charitable Remainder Trust Planning

1. Determine which kind of charitable remainder trust (CRT) is best for you to set up. Choose from a charitable remainder annuity trust, a charitable pooled income fund and a charitable remainder unitrust.

2. Enjoy the benefits of charitable remainder trusts when you donate assets into the trust. Under the structure of the charitable remainder trust, the trust will pay the beneficiary for a specified amount of time. After the established time has expired (such as the death of the income beneficiaries), the remainder of the estate assets are donated to the designated charity.

3. Recognize the benefits of no capital gains taxes when you set up a charitable remainder trust. For highly appreciated assets, the savings are immense, and the charity gets the full value of the transfer.

4. Check with the IRS stipulations on the minimum the CRT must distribute to be a valid charitable remainder trust. You must meet the requirements to enjoy the tax benefits of the CRT.

5. Contribute as much as you want to a charitable remainder trust. The limits to IRAs and 401(k)s do not apply to a CRT.

Determine a Charity

1. Choose a charity wisely. It is best to consult a tax adviser, attorney and/or an investment professional before making a decision to set up a charitable remainder trust. The investment choice you make must be in line with your assets, and the charity must be a valid charity with established goals.

2. Check out a charity through the local Better Business Bureau (BBB, see Resources below).

3. Research the charitable organizations of interest through the National Center for Charitable Statistics website (see Resources below). Read the profiles and statistics of all nonprofit organizations that submit a Form 990.

4. Establish your trust with the knowledge that you can never cancel a charitable remainder trust. You can, however, change the designated charity and the percentage to be distributed.

Tips & Warnings

• A charitable remainder trust is a particularly good alternative for couples who have no children or individuals with no heirs.

• Avoid investment scams by using only reputable attorneys and financial planners. You should never make an investment to an entity or individual who calls you. Instead, you should make the call to the investor.

Resources

• Search for the charity report at the Better Business Bureau
• Charity profiles at the National Center for Charitable Statistics