A charitable remainder annuity trust establishes a steady stream of income from the proceeds of assets held in the trust for a set number of years or the lifetime of one beneficiary. After the term has expired, the remaining assets are distributed as a donation to one or more charitable organizations.
As you might imagine, creating a charitable remainder annuity trust in New Mexico creates quite a few tax benefits, not to mention a reliable source of regular income payments. Not only can the donor take a partial income tax charitable deduction at the time of funding the trust, but they can also reduce or eliminate capital gains on the sale of certain assets held in the trust.
There are many ways to customize a charitable remainder annuity trust, allowing it to conform to your specific wealth portfolio, giving intentions, income needs, and estate planning goals. You can reach out to an experienced attorney team to set your own charitable remainder annuity trust, ensuring that you and your loved ones and your charity of choice can benefit from your life’s hard work.
Schedule a no-obligation, confidential consultation with New Mexico Financial & Family Law today to discuss your plans when you call 505-503-1637 or contact us online.
A charitable remainder annuity trust can provide both income security and peace of mind, knowing that part of your legacy is going to one or more charitable causes that you feel passionately about.
At the same time, there is one major point of concern when creating one: they’re irrevocable. That means that, once the trust is funded, the assets placed within it cannot be recovered.
Because of their nature as a tax-reducing mechanism, charitable remainder trusts have to abide by strict requirements in order to qualify. The IRS is also extremely wary of certain uses of the trust, such as using its assets (as opposed to the annuity payment generated from them) for personal expenses.
Working with New Mexico charitable remainder annuity trust attorneys gives you the ability to anticipate all of the stringent requirements, helping you plan ahead for your future financial situation. In addition, your attorney can help you come to a conclusion for a number of important decisions, such as:
Besides all of these considerations, you will have to ensure that your trust and your intended use of it comply with IRS rules as well as any other applicable state and federal laws.
At New Mexico Financial & Family Law, we have the experience and deep professional knowledge needed to assist you in succeeding in all your goals. Our New Mexico estate planning lawyers listen closely to your current situation and your intended vision of the future.
We can answer any questions you have and clarify important concepts, as well.
After a comprehensive case evaluation, we can then recommend several options based on your current requirements and future objectives. We may suggest a specific type of charitable remainder annuity trust, or we may even recommend that you consider an alternative, such as a charitable lead annuity trust, depending on your ultimate goals.
Our strategic and thorough approach to estate planning and trust creation helps you consider both the present and the future. While none of us knows for certain what tomorrow may hold, we can help you anticipate a wide range of likely scenarios — making your trust plans robust enough to withstand nearly anything fate throws your way.
There are several main components to a charitable remainder annuity trust:
A number of different possible assets can be donated into the trust, including:
Being an irrevocable trust, a charitable remainder trust maintains complete control and ownership of the asset until it is donated to the charitable beneficiary. Note that, in most cases, the trust will end up selling many or all of its non-cash assets in order to fund annuity payments and ultimately provide a charitable organization with a liquid asset.
As an irrevocable trust, a charitable remainder annuity trust removes ownership of assets from the estate of the original owner. This status means that, upon the passing of the original grantor, the assets held in trust are able to circumvent probate.
Further, these assets are removed from the reach of creditors and those seeking awards from a civil judgment, in most cases, especially once the original owner has passed away.
There are two major alternatives to consider in lieu of a charitable remainder annuity trust:
A charitable remainder unitrust only differs from its annuity version in that, instead of a fixed payment amount, the regular payments are set according to a percentage of the total value of the assets held in trust.
Like a charitable remainder annuity trust, a unitrust’s payment values may be at least 5% and not more than 50% of the value of the total assets. Additionally, the remainder left over after income has been distributed to non-charitable beneficiaries must be at least 10% of the initial funded value of the trust.
Because the payments made to non-charitable beneficiaries change after each previous payment, “the technicalities involved in determining the value of the income stream or the remainder interest are much more complex,” according to the trade organization The Tax Adviser.
Further, because the value of non-cash assets held in trust can dramatically fluctuate, predicting the total amount paid out of the trust as income to non-charitable beneficiaries can be quite challenging. Those funding and helping set up the account have to be confident that, once all income has been paid out, there will be at least 10% of the trust’s total original value remaining to donate to a charitable cause.
A charitable lead trust is drastically different from its remainder counterpart, considering that it reverses the structure of payments and who recovers the remainder.
In a charitable lead trust, the contents of the trust generate income that is paid to a designated charitable cause instead of a non-charitable beneficiary. Once the term of the trust has ended, the remaining contents are transferred to one or more named non-charitable beneficiaries.
Like a charitable remainder trust, the payments granted can be a set amount (annuity) or a percentage of the trust’s current value (unitrust).
Both remainder and lead versions of charitable trusts provide sizeable advantages and benefits to the grantor. However, each has its own strengths and weaknesses in comparison to one another.
Philanthropically-minded individuals should consider both options carefully, along with their own finances and plans for the future.
Generally speaking, a charitable remainder annuity trust is more favorable for non-cash assets since it can reduce or eliminate taxes on capital gains made from the appreciation in value of those assets. It also provides an income stream for the designated non-charitable beneficiaries, which can be extremely advantageous for supporting a loved one or ensuring that your own income is predictable.
A charitable lead trust, on the other hand, is preferable for reducing the impact of gift or estate taxes on your beneficiaries after your death. It also provides all-but guaranteed income to the charitable cause(s) of your choice, making it often preferable to those organizations since the payments come at a much earlier date.
Both lead and remainder trusts allow you to deduct the value of the donation from your income on the year the trust was formed, with a carryover of up to five more years for lead trusts. Because of this quality, lead trusts are often better for offsetting taxable income amounts in a year with a windfall of income.
Both types of trusts can provide advantages, though, depending on your life situation and what you intend to accomplish through your trust arrangement. Refer to an experienced attorney to decide which of these structures is right for you and how to set up your trusts to be as effective as possible.
Yes, depending on the language of the trust, the grantor may be able to change the designated charity or delay designating a charity while the trust is still active. They can then decide which charitable cause they choose to support either during their life if the trust terminates during this time or as a component of their last will and testament.
Yes, you or the trust managing firm must file Form 5227 annually, disclosing the financial activities of the trust, accounting for income, describing all payments made, and so forth.
Additionally, income received by non-charitable beneficiaries must be reported and taxed as ordinary income by the IRS.
Additional taxes may apply to the contents of the trust, including possible capital gains taxes on appreciated assets. Refer to your attorney and an experienced accountant to anticipate the ultimate tax burden and maintenance requirements of your intended trust.
Come to New Mexico Financial & Family Law for seasoned guidance and client-focused service. We do everything we can to make your options clear and spell out the advantages and risks of each available strategy.
With our help, you can set up a robust trust to provide for yourself, your loved ones, and the charitable causes you feel most strongly about supporting. Trust formation is one of the smartest strategies you can use for estate planning, but the key is to make the right choices for your specific situation and your ultimate goals.
Find out the best ways to save on taxes while supporting the people and causes you care about most in the world during a confidential case review with no obligation when you call us today at 505-503-1637 or contact us online.
CallCall now to schedule your consultation 505.503.1637
Office