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Money Matters for Seniors
Senior Citizen Investors Can Help a Charity and
Themselves
Charitable trusts
are a handy tax-saving tool and benefit a charity of your choice
By Robert Valentine,
Certified Senior Advisor
April 10, 2006 - Last December, the White House
Conference on Aging held its first meeting in 10 years. The conference
addressed the growing number of baby boomers reaching retirement and
highlighted how a large number of them are contemplating volunteering.
More and more retirees are volunteering for charities and non-profits in
an effort to contribute to their community and stay active and healthy.
Even the Peace Corps has seen a large increase in the number of older
volunteers. But theres a way you can contribute to society without
going overseas, and its called a charitable trust. It has become an
increasingly popular way to contribute to charity as well as save money
on taxes.
Trusts, simply put, are a way for you to transfer
assets and property into one solitary group. With a charitable trust,
the assets and property contained within it provide an income for you
during your lifetime. After you pass away, the remaining assets are
given to the charity within the trust. There are two major forms of
charitable trusts: charitable remainder trusts, and charitable lead
trusts. Charitable trusts have a host of other benefits, as well as a
few drawbacks, but here are the basics.
Charitable Remainder Trust (CRT)
A charitable remainder trust has two beneficiaries.
In most cases, one of them is you (and possibly your spouse), and the
other is the qualified charity or tax-exempt organization you plan on
supporting. During your lifetime you receive a set percentage of income
from the charitable trust. Once you pass away, the charity then
receives whatever is left over. (If your spouse was receiving income as
well, he or she will continue receiving it until passing away.)
One of the benefits of a charitable remainder trust
is that you may be able to become the trustee and make decisions about
the assets within the trust, including investment choices and other
important matters. Unfortunately, charitable remainder trusts are
irrevocable, but you may be able to change the beneficiaries when you
wish. This allows you some degree of personal freedom, especially if you
find a charity or non-profit that you feel is more deserving of your
gift.
With a charitable remainder trust you get to choose
the amount of income youll be paid from the trust on an annual basis.
According to the IRS, every year you must distribute at least 5% of the
value of the trusts assets. Depending upon the type of trust, you can
value the assets for distribution purposes at the time the trust is
funded or on an annual basis. Some beneficiaries choose to take more,
but its generally recommended to take no more than 10%.
All realized profit from investment sales within
the trust is not subject to capital gains tax. This is because you are
benefiting a charity. Charitable trusts are especially helpful when it
comes to highly appreciated assets with limited income-producing
potential. By avoiding the capital gains tax, more money goes to your
charity instead of Uncle Sam. You also get an income tax deduction
because your CRT supports a charity. Please note, however, that income
from trust assets is subject to federal income taxes.
Charitable Lead Trust (CLT)
A charitable lead trust is basically the same
concept as a charitable remainder trust, but in reverse. With a CLT, a
charity receives a certain percentage of income every year. Once you
pass away, whoever youve named as the beneficiary (a spouse or
children) receives the assets that remain. A CLT offers the same
advantages of a remainder trust, but the roles are reversed.
Both charitable remainder trusts and charitable
lead trusts offer a variety of advantages over traditional estate
planning tools. Above all, they allow you to give back to society while
still taking advantage of tax deductions and exclusion from capital
gains taxes.
There are numerous details and complex steps to
take when looking at a charitable trust as an estate planning option.
You should always find a trusted financial professional to help guide
you through the process. They can usually refer you to a known estate
planning attorney who will also help. Like all estate planning options,
trusts have their pros and cons, but theyre certainly a good option
worth considering if you wish to save on taxes, support a good cause,
and feel great about it in the process.
Robert Valentine is a Certified Senior Advisor in
Huntington Beach, CA. He can be reached at (877) 732-2637.
About author
This article was submitted by Robert
Valentine of Financial and Retirement Management. Robert (CA Insurance
Lic #0C23496) is a Registered Representative of and offers securities
through Securities America, Inc., a Registered Broker/Dealer, Member
NASD/SIPC. Advisory services offered through Financial and Retirement
Management, a Registered Investment Advisory firm. Robert is a Certified
Senior Advisor in Huntington Beach, CA. Several of his articles on
financial planning matters that concern investors have been published by
SeniorJournal.com. Robert
can be reached at (877) 732-2637.
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