Fairfax, VA (Law Firm Newswire) October 19, 2016 – Many people are of the opinion that if they bequeath money to charity upon their death, there will be a lesser amount left for their family. However, an experienced estate planning attorney is able to create an estate plan that includes charitable bequests and, in several cases, divert funds that are earmarked for the IRS, back to the family and charities that are important to the client.
One method of accomplishing this objective is to transfer the funds that were intended to be left to charity, to a charitable remainder trust (CRT). In this type of trust, the testator keeps an income from the trust, and any principal remaining after the testator’s death goes to charities named in the trust. The income can be a fixed percentage of the original contribution to the trust. This is called a charitable remainder annuity trust (CRAT). Alternatively, the testator could name a fixed percentage of the value of the trust as of the last day of the previous year. This is referred to as a charitable remainder unitrust (CRUT).
Prominent Vienna, Virginia estate planning attorney Lisa McDevitt says, “A charitable remainder trust is a valuable estate planning vehicle that the testator can use to simultaneously preserve wealth and be philanthropic.”
The advantage of using a CRAT is that the testator would be aware of the amount of income every year. The benefit of a CRUT is that the income would be able to grow if the trust assets reach an amount that is greater than the contribution. In addition, when using a CRAT, if the return on investment is not considered sufficiently large, the testator could use up the trust assets because the income is not contingent on the amount of assets in the trust. The testator would have the same problem if the assets were not placed in the trust, the testator had the same income, and the return on investment did not support that amount of income.
Or, in the case of a CRUT, the income is a portion of the value of the account every year. Thus, if there is a decrease in the value of the account, the income in the next year would be modified in accordance with the usual operation of the trust.
Furthermore, upon creation of the trust, the testator could realize a significant tax deduction, which can be distributed over a period of six years if the testator’s income is not sufficiently high to use the deduction in a single year. And if the testator is also a trustee of the trust, the testator has control over the way in which the funds are invested.
Lisa Lane McDevitt
2155 Bonaventure Drive
Vienna, VA 22181