Charitable Remainder Trusts can be used as a substitute for, or a supplement to a retirement plan. In the simplest case a client transfers highly appreciated property to a charitable remainder trust, reserving substantial payments for life and the life of a spouse. Upon the death of the last survivor the balance becomes the property of the charity. This arrangement can be attractive for 3 reasons:
- The gain on the appreciated property is not taxed,
- The value of the charitable remainder will generate some income tax savings, and
- The donor's interest in the trust is not subject to the tax on excess distributions.
Under another approach to this arrangement, the client makes gifts to a charitable remainder trust over time, and the income then generated accumulates free of any tax. The growth in value of this trust is sheltered from taxation until distributions are made to the grantor.
With Charitable Remainder Trusts, the marital deduction can still be made available to the client.
The IRS has strict interpretations over how these trusts are to be worded and how they must function. The IRS has published some sample declarations of trust forms for both the Revocable Trust and the Charitable Remainder Trust. An attorney and accountant should be consulted in crafting such an instrument.