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Large estates are subject to a variety of settlement costs including estate taxes and other costly fees. Additionally, some assets traditional IRAs, pension plans, unqualified deferred compensation, stock options, and others are subject to both income and capital gains taxes following the death of the owner of the asset. The settlement of these assets is called IRD, or “income in respect of a decedent.”
A Charitable Remainder Trust receives cash or property from a donor, makes payments to one or more named beneficiaries for life or a term of years, not to exceed twenty, and then distributes the remainder to charity. This provides the means for the donor to remove some assets from an estate, thereby reducing or even eliminating estate taxes.
Charitable Remainder Trusts are created in a variety of forms. For example, the Charitable Remainder Unitrust is re-valued each year and a set percentage is paid to one or more beneficiaries each year of its existence. The balance is paid to charity at the end of the beneficiary or beneficiaries’ lifetime(s) or a preset number of years.
The Benefits
- An income stream for the donor and/or named beneficiaries
- Potential tax savings of 50 percent by eliminating “income in respect of decedent” (IRD)
- Reduction or elimination of estate and gift taxes
- A legacy gift to benefit the work of The Fellowship
Download or request a free copy of The Fellowship’s Planned Giving Ideas and Options Guide>>
Mrs. Adams’ Charitable Remainder Trust Story
Mrs. Adams, a widow, had a 401(k) valued at $500,000. Her advisor told her that this 401(k) would be subject to estate taxes and would also create “income in respect of decedent” if given to her son at her death, resulting in a 50 percent loss! Mrs. Adams was an avid supporter of The Fellowship and decided to fund a Charitable Remainder Unitrust with her 401(k), providing a 20-year income for her son with the trust “remainder” going to The Fellowship at the end of the trust term.
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