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Charitable Plan: You Have a Big Heart AND Substantial Assets but No Next of Kin to Leave it To

by Caldwell Trust

In the event that you have substantial assets and do not have a next of kin or anyone in mind to designate as a beneficiary, you may want to consider establishing a charitable plan. With a charitable plan, your assets would be used to support the initiatives of charities or private foundations that matter to you.  A charitable plan also gives you the opportunity to leave a lasting legacy well beyond your lifetime.


How to Establish a Charitable Plan


There are several ways that you can structure your charitable bequests.  


You can choose to state in your will that upon your death, a percentage of your estate, a specific dollar amount, or a type of asset such as property or cash, is to be designated to one or more charities.  

It is important to use the appropriate wording in your will depending on how you want the assets to be distributed.


If you have significant assets and would like to provide a long term commitment to one or more charitable organizations, it is advisable to create a charitable trust.  


Charitable Remainder Trust (CRT)


The most commonly known form of a charitable trust is a charitable remainder trust.  Assets  that are transferred into the CRT can be invested or sold by the appointed trustee.  The beneficiaries, of which one cannot be a charity, would receive an interest income for the duration of your life.


Upon your death, the remaining assets otherwise known as the remainder interest of the CRT, would be paid to the charities or private foundations you selected as beneficiaries.


The payments distributed to you and the beneficiaries can be set as a fixed amount or a minimum percentage of the net value of the assets held in the CRT.  The distributions must be made at least annually and equal a minimum of 5% of the net market value of the assets.  


You also must choose between two types of CRT - annuity trust or unitrust.  Both offer flexibility with regard to payment options but there are differences with income payout in relation to market or inflation risk.


A CRT is irrevocable and usually requires that you cede legal control of the assets you put into the trust. There are also yearly management and administration fees associated with a CRT.


Tax Benefits of a Charitable Plan or CRT


Your retirement savings plan or life insurance policy, if owned by you at the time of your death, would be subject to estate taxes depending on the value of your estate and income taxes.  

To shelter those types of assets from a potentially high tax situation, you can designate one or more charitable organizations as a beneficiary.  You should first contact the charities you have in mind to confirm that they can accept the proceeds of your retirement plan or life insurance policy.


A charitable bequest is allowed as a tax deduction in determining the net value of the taxable estate.  The government does not impose any limitations on the total amount that can be deducted.

In the case of a charitable remainder trust, you may avoid capital gains tax upon transferring your assets. You would also be eligible for a current income tax deduction as your assets would be considered a gift to the CRT.  The CRT, being exempt from capital gains taxes, also benefits when the trustee invests or sells its assets.


Planned charitable giving requires you to strategically decide the best way to implement your financial resources based on your personal and charitable goals.


To determine if a charitable plan and/or a charitable remainder trust would be appropriate for your situation, you are encouraged to seek the assistance of a reputable estate planning individual or firm.


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