Charitable Remainder Trusts: An Important Estate Planning and Estate Tax Planning Tool

Many families, for a variety of different reasons, may consider making large donations to a variety of different charitable foundations. For example, both Barron Hilton and his father Conrad Hilton donated a large portion of their fortune to a charitable organization. Specifically, Conrad donated 97% of his fortune to a charitable foundation. In addition, another example is Warren Buffet who has promised to give away approximately 99% of his wealth during both his lifetime and at his death to a charitable foundation. 

Whatever the reason may be for your desire to make a charitable contribution, there are considerable tax benefits and estate planning considerations in making charitable contributions. However, you must structure your charitable contributions in a specific way, from an estate planning and tax planning perspective, in order to obtain the best tax benefit for your family, the charities, and your loved ones when you are gone. 

From the estate planning context, a charitable remainder trust allows you to reduce both income tax obligations and possible estate tax liability at your death. For example, let’s say that your gross and countable assets at your death total $6 million in value. However, $1 million of those assets are located in a variety of investments that you have accumulated over your lifetime. By transferring this $1 million asset into an irrevocable charitable remainder trust, you have removed this $1 million asset from your gross taxable estate, and in this example, reduced your $6 million taxable estate to a $5 million taxable estate. 

Therefore, in this example, this estate planning technique would both allow you to reduce the taxable estate to avoid the federal estate tax, as well as make a charitable contribution at your death to the charitable cause or foundation that you support, and not to mention, also allow for an income tax deduction for the charitable contribution. 

However, charitable remainder trusts are very complex, and there is much more to charitable remainder trusts than simply transferring an asset into an irrevocable trust. Therefore, you should speak with a knowledgeable and experienced estate planning attorney who devotes their entire law practice to estate planning before making the decision to establish a charitable remainder trust.

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