One method of making a gift with a retained right to income is a charitable remainder trust. Let’s look at some of the benefits a charitable remainder trust can provide:
- An income for you and/or your beneficiaries for life or a period of up to 20 years
- An immediate and substantial income tax charitable deduction (subject to certain income limitations) for itemizers
- Potential avoidance of current capital gains taxes when the trust is funded with long-term appreciated property
- Reduction of your estate to avoid or reduce death taxes
- Substantial reduction of probate costs, taxes, and other estate transfer expenses.
An Immediate Charitable Deduction
A gift to a charitable remainder trust qualifies for an immediate income tax deduction, even though income is to be paid to the donor (and/or other beneficiaries) for life. The exact amount of the charitable deduction depends on the:
- value of the property transferred to the trust
- amount of income benefits that are payable each year to individual beneficiaries
- approximate length of time the income benefits will be paid
- interest rates prevailing at the time the gift is made.
Despite the tax and financial benefits of a charitable remainder trust, you should consider this kind of arrangement only if you and your advisors determine it is compatible with your overall estate, tax and financial plan.