A charitable remainder trust is a trust that benefits the charitable institution of your choice. With this type of trust, you may be able to minimize your estate tax liability and save for federal and estate tax purposes. In many cases, estate planners can increase their clients’ current income while reducing tax liability and providing a generous gift in the future.
Are you interested in using a charitable remainder trust but unsure how it could affect your estate, beneficiaries, and tax liability? If so, Palmer & Slay, PLLC, is here to help. We are prepared to review your estate plan and advise you regarding whether this type of trust could be right for you. Contact Palmer & Slay, PLLC, to schedule an initial consultation.
How Does a Charitable Remainder Trust Work?
When you create a charitable remainder trust, you will transfer your money, stock, or other assets into the trust. A trustee you select will manage the assets in the trust to benefit your beneficiary, a charitable organization of your choice. The trustee will pay you from the income earned by the trust during your and/or your spouse’s lifetime.
You can designate other individuals as the lifetime beneficiaries of the trust. You can also set up the trust for a specific number of years. After the lifetime income payments, the trustee will transfer the assets to your beneficiary. You can designate a non-profit group to receive the money and property in your charitable remainder trust after you and your spouse pass away.
Charitable Remainder Annuity Trust (CRAT)
The charitable remainder trust can provide you and/or your spouse additional income for life. The lifetime payments to which you’re entitled depend on the type of charitable trust you choose to create. If you create a charitable remainder annuity trust (CRAT), you will receive a specific sum every year. As an estate planner, creating an annuity trust may be your best option if you want to receive a certain amount of money each year that is predictable.
Charitable Remainder Unitrusts (CRUTs)
If you create a charitable remainder unitrust (CRUT), you will receive a percentage of the total value of the assets in the trust every year. If your goal is to receive an amount that increases or decreases as the full value of the assets in the trust increases or decreases, you may want to create a unitrust.
The Main Benefits of Charitable Trusts for Mississippi Residents
Charitable remainder unitrusts and annuity trusts provide many benefits in addition to the lifetime of income. For example, you may be entitled to a substantial federal income tax deduction when you create and fund a charitable remainder trust. There will be no capital gains tax liability when you transfer appreciated property to fund the trust. When you appoint a professional investment management company to manage the assets in your trust, you will benefit from their services. Finally, creating a trust will reduce the property and assets in your estate, resulting in significantly better estate tax treatment.
Increasing Your Income Through a Charitable Remainder Trust
If you transfer your stock that pays little or no dividend income, the trust may be able to pay you the higher rate of return you have outlined in the trust. The trustee can take the stock you transferred into the trust and reinvest it into other investments that yield a higher income. As a result, the trust can become a financial vehicle for converting your assets into income-producing assets. Unlike other investments, you won’t have to incur capital gain tax, and you will be able to benefit from an income tax deduction simultaneously.
The Tax Benefits of Creating a Mississippi Charitable Remainder Trust
After you set up a charitable remainder trust, you’ll be able to claim a federal tax deduction for the present value of the “remainder interest” that the selected charity receives. The amount of the tax deduction to which you’re entitled will be determined by the following:
- Whether the trust is a unitrust or an annuity trust
- The age(s) of the lifetime income beneficiary or beneficiaries, and
- The rate of return specified in the trust
Generally, the charitable dedication will typically be higher the older the beneficiaries. Generally, the higher the rate of return specified in the charitable trust, the lower the amount of charitable deduction.
Is a Charitable Remainder Trust Right for Me?
Charitable remainder trusts are only one crucial part of a comprehensive Mississippi estate plan. If your estate is valued at over $12.06 million, it will be over the federal tax exemption rate. For a married couple, the combined exemption amount is currently $24.12 million. Estates valued over the exemption amount can be taxed at 40 percent. If your estate will be subject to federal estate taxes, it’s worth considering a charitable remainder trust. Doing so could result in your estate keeping 40 percent of the assets within it that you can give to a charitable group you support rather than the government. This type of trust is often a good fit for those who have a past history of providing to charitable institutions and are concerned with reducing their overall estate tax exposure.
Requirements for Charitable Trusts
You’ll need to continue to meet some requirements after creating your charitable remainder trust. You’ll need to ensure that the trust document is legally valid and that you transfer the entire principle irrevocably to the trust. You will no longer own the assets you transfer into the trust, and you won’t be able to make any additional contributions to the trust. As a result, a charitable trust may not be in your best interest if you want to maintain ownership and control of your assets or may change your mind later regarding the trust.
Discuss Your Estate Plan with a Skilled Mississippi Charitable Remainder Trust Attorney
Creating a charitable remainder trust can be beneficial for your estate planning goals. However, the process is very complicated. When creating a trust, you must work with a knowledgeable attorney who understands Mississippi estate planning laws. Contact Palmer & Slay, PLLC, to learn more about how we can help you take advantage of the benefits of charitable remainder trusts. We provide comprehensive estate planning services to Mississippi residents.
Palmer & Slay, PLLC, is dedicated to assisting clients with their charitable remainder trust needs in Mississippi, including Scott County, Rankin County, Brandon, and beyond.