Considering Charitable Giving as Part of Your Retirement Plan? Certain Trusts May Help

Once you start getting into your 40s, many financially successful people start thinking about estate planning, charitable giving, and long-term health care planning. There are ways to plan correctly if you act early enough.

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Considering Charitable Giving as Part of Your Retirement Plan? Certain Trusts May Help
4 Min Read March 21st, 2022

If you are making a good living, you might have thought about charitable giving, either for the good deeds you can help fund or for the tax benefits. 

When asked if giving to charity is part of anyone's financial plans or trajectory, it might sound non-sequitur at first. The reason being the two concepts do not match. For the moralistically upright, the thought of integrating an act of charity into one's financial trajectory makes the very act itself appear inauthentic and pretentious. 

People would concur that charitable giving requires selflessness, a trait that should not even be conscious of itself in the first place. However, getting something out of a good deed performed does not always warrant suspicion. 

Enter, Charitable Remainder Trust

This literature makes a case for Charitable Remainder Trusts as a way for its donors to reduce its taxes. You can take part of your earnings and fund a CRT, allowing you to assume social responsibility and cut down on your taxes, saving you money. Such creates a sense of fairness and a zest to give to others consistently bereft doubt.

Charitable Remainder Trust (CRT) 

What is a CRT and how does it work?

A Charitable Remainder Trust pertains to either cash or asset gifted to a binding, irrevocable trust. An irrevocable trust protects assets from being liquidated in the case of lawsuits or other situations that you may be otherwise liable to pay.

You can establish an income stream through the number of years the donor had set as its term through the CRT. On the other hand, the charity of choice would be receiving the remainder of the trust assets once the trust terminates. 

Once the CRT is funded according to the value of the assets channeled to the charity, you would automatically receive an income tax deduction.

A CRT is classified as a "split-interest trust." Trusts that fall under this category as their value is split into two segments: a Life Interest and a Remainder Interest. 

Upon the CRT's application, you determine its timespan, which may last during your lifetime or within a specified term. You, as the donor, also select the beneficiary, usually the spouse of the donor. This will be received from the Life Interest. Lastly, you determine the charitable institution to whom you would be giving to. The funds for this would be taken from the Remainder Interest. 

The Benefits of CRT

If you elect to place funds in a CRT, they reap the surprising benefits of reducing taxes. Should the CRT be deposited with cash, the donor becomes eligible for charitable deductions stretching up to 60% of their Adjusted Gross Income (AGI). 

Should you choose appreciated assets to fund the CRT, they are given the maximum of 30% of their AGI within the current tax year. In addition, if the donor cannot use the whole deduction during the year, they can have the deduction carried over for up to five more years.

Through the CRT, you may also defer capital gains. This would be effective until it has been distributed to the income beneficiary. This means that the donor can contribute concentrated positions that are highly appreciated to the CRT. The CRT also allows for the diversification of your tax position so that it would be tax effective. The donor's taxes would be spread out to alleviate its burden within the term. 

Estate Taxes may also be reduced or eliminated altogether with CRT. This is in light of it being binding and irreversible. This means that the assets contributed to the CRT are taken out of your estate.

Another Potential Income Stream

Individuals looking into creating more income streams without taking on another job might open a CRT and combine it with a DAF. This entails that you would have discussions with a lawyer who specializes in Estate Planning and a Tax Advisor to ascertain if a CRT would be able to come up with results expected from its application. These expectations should align with the charitable gift's income tax consequences and how the CRT would be executed.

The DAF may be used by the donor as means to give charitably for a lifetime. They may do so by funding the DAF through the distributions made consistently to the donor's CRT. The donor places the income distribution in the DAF and afterward gets an income tax deduction corresponding to the contribution. This provides funds for upfront grant distributions that are still within the donor's lifetime.

Should the donor desire to increase their CRT's amount to serve the charity more in the immediate or in the future, they may choose to cash out their income interest or convert the CRT into a DAF. Should this be the case, you would be getting a one-time income tax benefit.

This ultimately means that the DAF augments the potential benefits the CRT can deliver. This imbues the fund with considerable donor flexibility so that they may be able to plot when the giving would be done according to the terms convenient for them.

Open a Charitable Remainder Trust Today!

With everything discussed here, it is apparent those considering charitable giving have a lot to look forward to if they elect to open a CRT. Those who have allotted part of their earnings to a CRT enjoy considerable benefits that inspire in their joy in giving and allow them to be regarded as honest, hardworking taxpayers.

So, if you think you can spare a charitable institution some of your hard-earned money, elect to do it through a Charitable Remainder Trust.

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About the Author

Sophia Young became a writer be able to tell stories and paint the world through her words. She writes on a variety of topics that interest her and her readers. Contact her at -

LTC News Contributor Sophia Young

Sophia Young

Contributor since September 16th, 2021

Editor's Note

No matter the amount of money you have earned during your lifetime, you probably worked hard and intend for the money you earned to work for you and your family.

Many people share common goals, retirement, family, and even good works. Charitable giving is one thing that, for some people, is important for their life.

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