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The Heritage Law Center, LLC Blog

Using Charitable Trusts to Follow Oprah’s Example

POSTED ON: January 19, 2011

This week, CNN premiered its newest talk show “Piers Morgan Tonight.” For his first guest, Piers interviewed another venerable TV personality, Oprah Winfrey. While their conversation hit many topics, I was struck by Oprah’s statements concerning what she wants her estate plan to do with her massive fortune once she’s gone.

“When I’m gone, everything that I have is going to go to charity because I don’t have children. And I believe that that’s what you should do,” she said. “To whom much is given, much should be given back.”

What an admirable sentiment. I can only imagine the good that will come from her charitable attitude and sizable estate. However, you do not have to be in the Oprah stratosphere of riches to want to give to a good cause, and giving to charity does not mean you can’t also reap some rewards. Using a charitable remainder trust as part of your estate plan, you can both give and receive!

Charitable Remainder Trusts (also called CRT’s) come in several varieties and are generally for people who have highly appreciated assets (such as stock or real estate) that they want to donate to a charity or organization they admire. By utilizing these trusts donors can secure a current tax break, preserve or gain a source of income, and provide their beneficiaries with a tax-free inheritance in the future.

Charitable Remainder Annuity Trust
A charitable remainder annuity trust (CRAT) is a type of CRT used in situations where the donor wishes to provide a non-charitable beneficiary (such as themselves or a loved one) with a stream of income to last for a specific time period. The CRAT is required to pay, at least annually, a fixed percentage of at least 5% of the fair market value of the trust assets to the noncharitable beneficiary, either for the life of the individual or for a period less than 20 years. The remainder, which is required to be at least 10% of the originally contributed amount, then passes to charity. By using a CRAT, the noncharitable beneficiary not only receives an income stream but also an income tax deduction from the present value of the remainder interest. One restriction affecting CRATs is that the donor can transfer property to the trust only once with no additional contributions.

Charitable Remainder Unit Trust
A charitable remainder unit trust (CRUT) is very similar to a CRAT except that with a CRUT the donor can make more than one transfer to the trust. Also, once a CRUT is established it must pay out a specific amount of income each year, as a fixed percentage of at least 5% of the trust’s total value. Like a CRAT, the CRUT must pay an income stream to the noncharitable beneficiary either for the life of the individual or for a period less than 20 years. A trust will not qualify as a CRUT unless the value of the charitable remainder is at least 10% of the initial fair market value of all property transferred to the trust.

These estate planning tools provide a valuable way to give to charity while reaping various tax and income benefits. Putting assets into a CRAT or CRUT removes them from your estate so that no estate taxes will be due on it when you die. The trustee can also sell the asset at full market value, without paying a capital gains tax. And while not tax exempt, a charitable trust allows its organizer to claim a charitable contribution tax deduction while also receiving an income stream.

If you are interested in learning more about these estate planning tools and how they can effectuate your charitable intentions you should contact a Massachusetts estate planning attorney.