Planning for your family’s future after you have passed is an honorable and prudent thing to do. There are many ways in which you can ensure the financial stability of your loved ones long after you are gone and in the state of Florida, one such way is to set up a charitable remainder trust. This particular type of trust can help you reduce estate taxes that will be required to be paid on your assets once you are deceased and allow you to cement your legacy by gifting to a charity of your choosing. It may even help you reduce capital gains taxes on the sale of assets while you are alive. The knowledgeable estate planning attorneys of Battaglia, Ross, Dicus and McQuaid, P.A. are ready to assist you in setting up your charitable remainder trust.
How Does a Charitable Remainder Trust Work?
In short, a charitable remainder trust pays a percentage of the value of the assets you contribute to the trust annually. Each year, the value of those assets is recalculated along with the income paid out from those assets.
For example, if you chose to fund your charitable remainder trust with assets worth $750,000, and chose to have 10% per year paid to you, you would receive an income of $75,000 in the first year. If the value of the assets held in the trust increases, then the following year you would be paid 10% of that recalculated amount. Likewise, if the value decreases, you would be paid 10% of that lower amount.
The assets worth $750,000 that you initially gift to the charitable remainder trust could be a large holding of stock or perhaps real estate. Let’s imagine that earlier on in life, you and your spouse invested in a company’s stock and your holdings are now worth that previously mentioned amount. You would like to provide an income for yourself and your spouse for the rest of your lives and also provide for your child once you have passed.
Assuming you chose to be paid 10% of the amount added to the charitable remainder trust, you would receive that $75,000 each year. If you die, your spouse will then receive that amount. After your spouse passes, that amount would then be paid to your child. Once your child has passed, the remaining assets are gifted to a charity of your choosing.
How Can I Save on Taxes With a Charitable Remainder Trust?
Suppose that your initial investment in the stock was $100,000 and it is now worth $750,000. You now want to sell the stock and live comfortable for the rest of your life while also providing for loved ones. If you sold the stock as is, you would be taxed on capital gains of $650,000. Currently, if your income is lower than $441,450 your capital gains tax rate would be 15% or $97,500 leaving you with $652,500. However, if you transfer the entire sum to a charitable remainder trust and then sell the stock, you would not incur capital gains tax because the charitable remainder trust is a charitable entity and therefore, not subject to them. This works because the trustee of the charitable remainder trust is the charity that you name when you set the trust up. This means that the settlor, (the creator of the trust) is actually paid annually by the charity.
In addition to savings on capital gains taxes, you can also receive a charitable deduction on your income for part of what you initially gave to the charitable remainder trust. You can choose to spread this deduction over a period of five years, if it suits you. Otherwise, you can take the deduction all in the first year. The estate planning attorneys of Battaglia, Ross, Dicus and McQuaid, P.A. are uniquely qualified to discuss the benefits of a charitable remainder trust with you in greater detail with a consultation.
Is There More Than One Type of Charitable Remainder Trust?
A charitable remainder trust is irrevocable can come in one of two forms: a charitable remainder unitrust and a charitable remainder annuity trust.
Charitable Remainder Unitrust
A charitable remainder unitrust is similar to a variable annuity in that it will pay out a percentage of the value of the assets held in the trust. Each year, the value is recalculated but the percentage paid out remains the same. For example, if you paid the initial $750,000 into a CRU and you chose to receive 10% each year, if the value of the assets rises you will be paid a higher annual sum. However, of course, the inverse is also true. If the value of the assets falls, you will be paid a lower annual sum.
Charitable Remainder Annuity Trust
A charitable remainder annuity trust is similar to a fixed annuity in that it will pay out the same amount each year regardless of whether the value of the assets held in the trust increase or decrease. So, if you contributed the $750,000 to a CRAT and you reserved that 10%, each year you would be paid $75,000 even if the value of the CRAT increased to $1 million.
With so many options to protect what you’ve earned and pay-it-forward to the ones you love, not to mention, to a cherished charity doing good work for the people of Florida, it can seem as if there are a labyrinth of paths and decisions you might take. The estate planning attorneys of Battaglia, Ross, Dicus and McQuaid, P.A. are here to help clear your way forward.
Hire an Experienced Estate Planning Attorney Today!
At Battaglia, Ross, Dicus and McQuaid, P.A. our highly qualified estate planning attorneys are experts in the variables of Florida state law. With decades of combined experience helping clients preserve their wealth for future generations, our attorneys can speak to your personal situation and talk you through real-world scenarios of how to best manage your assets. Engaging one-on-one with each client is our specialty! Call us for a consultation regarding setting up your charitable remainder trust and ensure your loved ones are cared for today!
