Charitable remainder trusts have become a popular option for people looking to put their assets, especially assets that have appreciated in value, to work for themselves or their loved ones and for animals.
A charitable remainder trust is designed to provide income in the form of annual payments to the donor or other beneficiaries for life or for a period of up to 20 years. It takes its name from the fact that a charity or charities must be named as the eventual beneficiaries (remainder beneficiaries) of the trust’s assets once the trust terminates.
A charitable remainder trust is irrevocable. Once assets are transferred to it, the trustee, who can be you or someone you name (generally a trust company or financial institution), is able to sell the assets and reinvest in income-producing assets. Because it is tax-exempt, no capital gains tax is paid on the sale of appreciated property sold by the trust.
Charitable remainder trusts make annual payments based on a payout percentage that you select (which must be at least 5 percent) to the named income beneficiaries. When the trust terminates, the assets that remain go directly to PETA as your named charity.
The following are some of the benefits of a charitable remainder trust:
- It is a very effective and efficient way to maximize your gift to animals.
- You can provide financial security for yourself and your loved ones and increase the income from low-yielding assets.
- It facilitates diversification in a potentially tax-free environment.
- You may receive a charitable income tax deduction in the year that you transfer assets to the trust (for the present value of what eventually will be transferred to the charity), and you can carry over any unused deduction for an additional five years.
- You can avoid capital gains tax on the sale of appreciated assets by the trust and maximize after-sale income.
- The annual payouts may be partially tax-free (considered a return of investment).
- Because the assets are removed from your estate, you may enjoy reduced probate costs and increased estate-tax savings.
There are two types of charitable remainder trusts: a charitable remainder annuity trust, or “CRAT,” and a charitable remainder unitrust, or “CRUT.” Whereas a CRAT pays a fixed dollar amount that is established at the time the trust is created, a CRUT pays an annual amount that is based on the trust’s investment performance and can therefore vary. In addition, a one-time transfer of assets can be made to a CRAT, whereas multiple transfers can be made to a CRUT.
A common concern that many people have when they consider making a charitable gift is that they do not want to deprive their family or other loved ones of an adequate estate. However, with some planning, you can create a “wealth replacement plan” that will substitute life insurance for the assets donated to PETA.
Upon making a charitable gift to PETA, either outright or through a charitable remainder trust or other life-income plan, you can use the tax deduction and other financial benefits that result from the gift to purchase a life insurance policy to replace all or part of the assets donated to PETA. When you pass away, the proceeds would go to your chosen beneficiary or beneficiaries.
As always, we suggest that you consult with your independent financial, tax, or legal advisor for specific help with your particular situation, as the above is intended as an introductory outline only and PETA does not provide financial, tax, or legal advice. But if you would like more information about the various ways that you can benefit PETA, please click here.