Lombard has a high percentage of caring residents who make regular donations to charitable causes and plan to leave a gift to charity in their will. However, for many people, it makes more financial sense to establish a charitable remainder trust than to leave a bequest or make simple donations.
A charitable remainder trust enables the person establishing the trust to receive income during their lifetime while reducing taxes and allowing the potential for diversification of assets. When the individual who establishes the trust passes away, the remaining assets in the trust go to support one or more favorite charities. Many people view the creation of a charitable remainder trust in Lombard as a win-win situation.
A charitable remainder trust is an irrevocable trust, which means that once it is created, the trust cannot be canceled. However, it may be possible to change the beneficiary of the trust if the creator, generally referred to as the grantor, decides to support a different charity.
Income may be provided to the grantor of a charitable remainder trust in Lombard in one of two ways. If the income is based on a percentage of the trust, it is known as a “unitrust”. If instead the income is set as an annual fixed amount, the trust is often called an “annuity” trust.
The grantor may serve as trustee of a charitable remainder trust, which enables the person creating the trust to determine how to invest trust assets. It should be noted that income the grantor receives from the trust would be treated as taxable income.
The popularity of charitable remainder trusts in Lombard stems from their many advantages. To begin with, the amount contributed to the trust is treated as an income tax deduction as charitable giving. The value of the deduction may be affected by the value of the annual income interest received and the age of the grantor.
One of the primary benefits to a charitable remainder trust is the avoidance of capital gains tax. If the trustee sells assets that have appreciated substantially in value, no capital gains tax accrues. This allows a trustee to sell concentrated assets and diversify holdings without tax liability.
Another considerable benefit is the avoidance of estate taxes. Assets placed in the charitable remainder trust would not be part of the grantor’s estate and thus not subject to estate taxes. Instead, the assets would pass directly to the grantor’s chosen charity.
As with the creation of any entity, it is important to consider all relevant factors and learn the full ramifications before establishing a charitable remainder trust in Lombard. While a charitable remainder trust provides many benefits, the irrevocable nature of this type of trust provides grounds for caution. Guidance from an experienced professional is advised.
A trusts and estates lawyer familiar with the advantages and concerns associated with charitable remainder trusts could evaluate the benefits in light of an individual estate situation. After considering all relevant factors, an estate attorney might recommend alternatives to a charitable remainder trust such as donor-advised funds, a charitable lead trust, establishment of a charitable foundation, a conservation easement a charitable gift in a living trust, or a bequest in a will. After considering all the options, however, many people in Lombard find a charitable remainder trust to be the right choice.