Charitable Remainder Trust

What is a trust?

The origin of the term trust comes from the Middle Ages. When heads of households went on long journeys, such as the knights going off to the Crusades, they generally left their assets with a trusted friend or associate to be managed “in trust” until they returned. Today the term refers to money or property held and managed by someone other than its owner.

What is a charitable remainder trust?

A charitable remainder trust is a trust set up to generate an annuity, which generally goes to the donor or someone he or she designates every year. When the donor dies, the church receives the corpus (remainder) of the trust.

Why are remainder trusts useful planned giving vehicles?

Charitable remainder trusts are great planned giving vehicles for several reasons. First the donor receives supplemental income, as in the gift annuity, usually in a fixed amount. Second, the donor can take a charitable deduction in the year the trust is established. Frequently donors fund a trust with greatly appreciated property and avoid or defer income taxes. Heirs will have the advantage of reduced estate taxes. You can add money to the trust over the years, if you select an annuity tied to the ongoing value of the trust. And you may change the selection of charities to receive money upon your death.

Are there any downsides to a remainder trust?

Yes, possibly the biggest one is that a trust requires financial management by a bank or qualified trustee. Because of this, most financial managers recommend the trust have at least $100,000 in assets, and $250,000 is more common.

Charitable Lead Trust

I’ve heard about charitable lead trusts – what are they?

In a charitable lead trust the church receives the trust income for a set period of time – usually 15 years. After that time the trust expires and the money reverts to family members, usually children. A lead trust helps you to avoid or reduce estate taxes if that is a concern. As the trust’s assets grow at a rate higher than the annuity rate, the children receive the appreciated property tax free. Lead trusts may provide important planned giving opportunities for your family and the church, but require sound financial analysis and legal advice before being setup.