Charitable trusts have become popular among estate planners in New Jersey. One type of charitable trust is a charitable remainder trust, also known simply as a “CRT.” This type of trust has many advantages, but it is important to understand the potential downsides of this estate planning tool as well. In order to discuss the best estate planning options for your specific situation, consider getting in touch with a qualified estate planning attorney in New Jersey.
What is a Charitable Remainder Trust?
A charitable remainder trust allows estate planners to achieve various goals:
- Donation to charity
- Income for grantors and beneficiaries
- Avoidance of taxes
The process begins when the grantor contributes funds to the trust. This contribution counts as a charitable donation and can be used to offset tax obligations on that year. From that point forward, the trust can generate income in a number of different ways. A charitable remainder annuity trust provides income based on a fixed annuity calculated via the initial contribution. A charitable remainder trust also provides income but on a variable annuity calculated each year. At some point in the future, the remainder of the trust’s assets will be donated to a charity of the grantor’s choosing after other assets have been distributed to the beneficiaries.
Pros of a Charitable Remainder Trust
There are several advantages associated with a charitable remainder trust:
- Charitable Donations: First of all, the grantor can achieve their ethical and moral goals by leaving behind certain assets to a charity of their choosing. This can lead to a sense of fulfillment.
- Income for Beneficiaries: The trust may also generate income for beneficiaries. This helps grantors achieve peace of mind as they strive to provide for family members who may struggle with financial security in the future.
- Income for Grantors: The income generated by a CRT may also assist grantors directly during their lifetimes. This may help grantors shoulder the expenses of retirement while maintaining a high quality of life.
- Avoidance of Taxes: A charitable remainder trust has the potential to help grantors avoid a wide range of taxes. These include capital gains taxes, income taxes, estate taxes, and inheritance taxes.
Cons of a Charitable Remainder Trust
However, there are also a few downsides of charitable remainder trusts:
- Irrevocable: The first major disadvantage to consider is the fact that a CRT is a type of irrevocable trust. This means that once it is established, the trust is difficult to cancel or alter. Essentially, you lose control of the trust once it is established.
- Increased Regulations: There are very strict rules associated with CRTs. The IRS has increased its regulations on this subject, and they have cracked down on people who use the CRT to avoid taxes without providing much to charities.
- Charitable Obligations: There is no getting around the fact that part of the trust must be donated to charity. While this may seem like an advantage to some estate planners, it may seem disadvantageous to others.
- Costs: Like all trusts, CRTs cost money to establish and maintain. One should factor in these costs to determine whether this estate planning tool is truly worth it.
Where Can I Find a Qualified Estate Planning Attorney in New Jersey?
If you have been searching for an experienced estate planning attorney in New Jersey, look no further than Giro, LLP, Attorney at Law. Over the years, we have guided numerous estate planners toward the most appropriate options to reduce taxes, provide for beneficiaries, and achieve peace of mind. A charitable remainder trust is just one of the many options available to New Jersey residents. Book your consultation today to discuss your estate planning options in more detail and get started with an effective estate plan.