New York Estate Planning & Elder Law Blog
America currently has 72 million people from the Baby Boomer generation, the oldest of which are turning sixty-eight this year. That is also the average age when people decide to create charitable remainder trusts. Estate planning attorneys are expecting a big increase in the number of charitable trusts set up over the next twenty years as the rest of the Baby Boomer generation begins the estate planning process.
Charitable Remainder Trusts
A charitable remainder trust is a trust that provides a distribution, usually annually, to one or more beneficiaries where at least one is not a charity. The distributions can be made over a period of years or for the life of the beneficiaries, but an irrevocable remainder interest is held for the benefit of one or more charitable institutions.
Charitable remainder trusts can be set up in a number of ways. Usually, the trust creator will establish the trust during his lifetime and enjoy the tax benefits that come with it. He names himself and his family members as beneficiaries to the trust, and they all take distributions during their lives. When the creator dies, the rest of the family can continue to take distributions or the remainder can immediately go to the charity, whichever the trust creator prefers.
Benefits of Charitable Remainder Trusts
One of the main reasons for the boon in charitable remainder trusts is the demographics. These types of trusts grew fourfold during the 1980s and 1990s, but they quickly tapered off in popularity due to a mixture of demographic, economic, and tax conditions. The Baby Boomer generation as a whole is more charitable than other generations, and tax laws once again prefer these types of estate planning tools. Another reason for the increase is for tax purposes. Recent tax laws have changed that have increased the amount of capital gains taxes owed after selling a business or asset so placing them in a trust can help avoid those tax implications.
The biggest benefit for the charities in the creation of charitable remainder trusts is the permanency of the arrangement. Unlike other bequests or instruments, the remainder interest for charities in these types of trusts is irrevocable. Many multimillion dollar bequests to charities and other nonprofit organizations never come through because the family challenges it after the decedent has passed away or because someone simply changed their mind about the arrangement. However, under a charitable remainder trust the money cannot be moved or changed thereby ensuring that the charity will in fact receive the remainder of the estate.
The Future of Charitable Remainder Trusts
Many experts agree that charitable remainder trusts will continue to grow in popularity over the next decade or two. One reason is that these types of trusts work for people at almost any age that is considering estate planning. The retiree who needs income for a decade before taking mandatory withdrawals can easily work with a charitable remainder trust. Similarly, a father in his forties can also set up this type of trust and can make a gift to a charity as well as bypass capital gains taxes while providing the funds for his children’s educations.
Other estate planning attorneys agree that the number of charitable remainder trusts will grow but that most of the trust creators will opt for trusts that provide income to life for their families instead of a period of years. If you or someone that you know is beginning the estate planning process, speak with an estate planning attorney and see if a charitable remainder trust is a good option for you.