When you are planning your estate you need to identify an attorney who is focused on this particular area of specialization because of the fact that there are so many financial instruments involved. It takes time and dedication to this aspect of the law to fully understand all that is available to you and when you should implement one strategy rather than another.
With this in mind we would like to take a look at a very effective device that can achieve multiple estate planning goals simultaneously: the charitable remainder trust. Through the creation of such a trust you can gain tax efficiency, provide yourself with a source of income for life, and satisfy your philanthropic urges all in one fell swoop.
The way that these instruments work is that you fund the trust and name yourself as the beneficiary (if you want to receive the income rather than naming a different beneficiary). You can also serve as the trustee if you so desire, but many people engage a bank or trust company to serve this function. If you fund the trust with appreciated securities they will not be subject to capital gains tax and this is one of the primary appeals of the charitable remainder trust.
You as the beneficiary have to receive at least 5% of the fair market value of the trust annually, but your distribution may not exceed 50%. The charity that you choose must wind up with a remainder of at least 10% of the original value of the contribution into the trust at the end of its term. Your are entitled to a charitable deduction on your income tax return for the year in which you fund the trust, but IRS tables will determine the amount you may deduct.
In addition to the charitable deduction and the capital gains break, when you create a charitable remainder trust you also remove the value of the contribution from your estate for estate tax purposes.
At the end of the trust term, which can be for the life of the donor or for a specified period of time not to exceed 20 years, the remainder is passed on to the charitable or tax exempt organization named in the trust agreement.