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# How Can I Benefit from a Charitable Remainder Trust?
Sometimes it takes tough economic times and natural disasters to unite and bring out the best in people. Natural disasters such as hurricanes and earthquakes have served to bring communities together and impact the nation as a whole. Americans have given generously to rebuild communities and help local residents through these difficult situations.
Many people have also responded to tragedies worldwide or have made donations to wildlife and environmental charities. And when we give, most of us simply give from the heart and do not always consider the financial implications.
In many instances, there are ways to enhance the value of your gifts. The charity can receive a more substantial gift and you can increase your tax benefits. The charitable remainder trust is a popular estate planning strategy that could enable you to gift an appreciated property or security and retain an interest income for you and your family.
Once your gift is put in a charitable trust, you may qualify for an income tax deduction on the estimated present value of the remainder interest that will eventually go to charity. Neither party will owe taxes on this transfer or upon the appreciation of the asset. The trust will usually sell the asset and reinvest the proceeds in an income-producing investment. You can receive this income in exchange for gifting the ownership of the asset to the charity.
You will then need to decide how you would like to receive income. You can receive either a percentage of the value of the trust or a fixed amount. With a percentage allocation, your income will vary based on the current value of the trust. You can also specify that payments will be made only from income, if that is less than the unitrust amount in any year. You can also provide a “make-up” clause. If the trust is not able to provide the designated income for one year, the shortfall will be made up from income in a later year.
Trusts that provide a fixed amount each year will not be able to take advantage of future growth or higher earnings of the asset, but they do offer consistent income even in a stagnating market.
Choosing a trustee and clearly stating your intentions in the trust document and to the trustee are of vital importance. Once the trust is in place, it is an irrevocable instrument. Even if the charity does not receive any benefit for several decades, it will eventually assume ownership. In the meantime, the trustee is in charge of controlling the assets in the trust. Choose someone who knows how to handle financial matters and who will carry out your intentions.
A charitable remainder trust may allow you to make a substantial gift to charity, avoid capital gains tax, and provide regular income for you and your family. A noncharitable beneficiary is generally taxed on distributions.
While trusts offer numerous advantages, they incur upfront costs and ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You might consider enlisting the counsel of an experienced estate planning professional and your legal and tax professionals before implementing such strategies.
The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ­purpose of ­avoiding any ­federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2025 Broadridge Financial Solutions, Inc.
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# How Can I Benefit from a Wealth Replacement Trust?
Charitable giving can be a rewarding experience by allowing you to both give and receive. To enjoy the benefits of charitable giving, you can utilize a variety of strategies.
## The basics of charitable remainder trusts
To establish a charitable remainder trust, you transfer appreciated property to an irrevocable trust and designate the charity of your choice as the remainder beneficiary of the trust. The property in the trust is then sold and reinvested to provide income. You generally retain a lifetime interest in the income generated by the trust, and when the trust expires at your death, the remaining property in the trust is transferred to the charitable organization.
You are entitled to a current income tax deduction for the charitable gift, subject to certain limits. And because the property was sold within the charitable trust, you will not have to pay tax on any capital gains. (However, distributions you receive from the trust are generally subject to income tax.) This enables the full value of your property to be reinvested, which will increase the income generated by the trust. It also enables the charity to receive a larger gift.
If you have heirs, a charitable remainder trust has one major drawback: When the charitable trust terminates, the property in the trust is transferred to the charitable organization, rather than to family heirs. So while the charitable remainder trust offers many benefits, this strategy can effectively disinherit your heirs.
## Replacing gifted assets
One effective solution to this situation could be a wealth replacement trust.
To create a wealth replacement trust, you use a portion of the income from a charitable remainder trust to buy a life insurance policy. You decide how much of the charitable gift to replace. You can buy enough insurance to replace only a portion of the property that will eventually pass to charity, or you may prefer to replace all of the property in the charitable remainder trust.
The wealth replacement trust is often designed so that upon the death of the second spouse, the life insurance death benefit goes to your heirs. These funds replace the property that passes to the charity from the charitable remainder trust.
And because the life insurance policy is owned by the trust, the proceeds of the policy will generally not be subject to estate taxes at either death.
## An appropriate strategy?
If this strategy sounds interesting to you, there are a variety of considerations. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Before implementing this strategy, it would be prudent to make sure you are insurable. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company.
In many cases, the wealth replacement trust could be an appropriate way to preserve family wealth.
While trusts offer numerous advantages, they incur up-front costs and ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You might consider enlisting the counsel of an experienced estate planning professional and your legal and tax professionals before implementing such strategies.
# Family Limited Partnership
# Could My Family Benefit from a Family Limited Partnership?
Effective estate planning should address wealth transfer from a practical and cost-effective approach. One estate planning strategy that families with closely held businesses should consider is the family limited partnership.
## What Is a Family Limited Partnership?
A family limited partnership is a partnership agreement that exists between family members who are actively involved in a trade or business. The partnership divides rights to income, appreciation, and control among the family members, according to the family’s overall objectives. Under family partnership rules, the “family business” can include real estate or investments.
## How Is This Arrangement Achieved?
Under the most common form of family partnership, you would begin by creating general and limited partnership interests in your business. Once the partnership is established, you then gift the limited partnership interests to your children.
By holding the general partnership interest, you are considered the “general partner” and maintain control over the enterprise. Your children are the “limited partners,” and the limited partnership interest lets them share in the ownership of your business as well.
## A Sound Strategy for Transferring Ownership
A family limited partnership enables you to provide your children with an interest in your business while achieving many goals. First, you can gauge whether or not they possess suitable ownership abilities by involving them in the business. Second, it removes the asset from the parents‘ estate, thus lowering the estate tax liability, if properly executed. In addition, you can transfer the limited partnership interests in increments over time, resulting in a gradual, systematic transfer of ownership. Finally, and perhaps most importantly, there may be immediate income tax benefits.
## Estate Tax Savings
The interests transferred to your children, including all appreciation since the transfer, escape inclusion in your estate when you die. Only the value of the taxable gift(s) will be included. This can result in estate tax savings down the road.
## The Benefits of Leverage
By giving the partnership interests in increments over time, you can take maximum advantage of the annual gift tax exclusion. The exclusion duobles if you’re married and if each spouse elects to give the maximum amount. The gift tax exclusion is indexed for inflation.
In addition, “minority discounts” — allowable reductions to the value of the gift because it is a minority interest — can lead to greater leverage of the annual exclusion and the unified credit. For instance, you may be able to discount the value of the gift up to 30 percent or more. However, in order for the discount to be valid, there must be a legitimate business reason for the partnership.
Generally, your wish to keep the business in the family is a legitimate reason to set up a partnership agreement — as long as you are joined together for the purpose of enterprise and not just to avoid taxes.
## Income Tax Benefits
Aside from the estate planning advantages, the family limited partnership can result in substantial income tax savings. By including your children as partners and sharing partnership income with them, total family taxes may be reduced. You should be aware, however, that if the income is unearned and the recipient is under age 14, “kiddie tax” rules will apply.
## Other Opportunities Can Serve Your Family
In addition to family limited partnerships, there are other arrangements that can serve family interests:
Family partnerships are arrangements under which each partner must play a role in the management and day-to-day operations of the business. Many of the benefits are similar to that of a limited partnership, but the family members accept more liability and will be more involved in the business. As managing partner, however, you must always receive a minimum income share that is proportional to the value of your services. In addition, minors typically cannot be partners unless there is someone who controls the interest for the minor.
Investment partnerships are partnerships that hold nonbusiness assets such as securities and real estate that are likely to grow in value. Families can base a limited partnership on an investment partnership. In some cases, however, the arrangement would be considered an investment company, and gains and losses will be realized on the transfer of property to the partnership. Normally, under partnership rules, gains and losses are not realized when transferred to the partnership.
## Seek Professional Guidance
The benefits of the family limited partnership can be significant. But they can only be realized if the arrangement is valid under the requirements of the IRS. There are costs and expenses associated with the creation of these legal instruments. Consult a qualified legal or tax professional if you think your family could benefit from a family limited partnership.