Estate Planning Law Office of Attorney Joseph F. Pippen, Jr. & Associates
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Q.  Could you please explain the “charitable remainder trust” and the benefits as it relates to estate planning?

A.  Federal tax laws make it possible to contribute sizable gifts without the loss of one’s income.  It is also possible to make large gifts to charity and actually increase one’s lifetime spendable income in the process.  This can all be made possible by creating a charitable remainder trust.

            The two types of charitable remainder trusts are the annuity trust and the unitrust.  The annuity trust is one from which a specified sum is paid to the non-charitable beneficiary each year.  With the unitrust, the net market value of its assets is determined annually.  A prescribed percentage of this value is paid to the beneficiary each year, thus the payments may vary from year to year depending upon the trust’s current asset value.

            Under these trusts, the donor receives an immediate tax deduction for transferring assets to a trust that meets the requirements of a charity under the Internal Revenue Code.  A special provision should be included in the trust, allowing one to change the charitable beneficiary in case the charity receiving the gift ever loses its “charity status.”

            With the abundance of non-profit organizations emerging in the State of Florida, it becomes easy to do some estate planning which gives you favorable tax breaks and, at the same time, helps your favorite charity.

            An example of how the charitable remainder trust could work is as follows:  Bob and Mary, age 75, owned stock in ABC Company, which stock accelerated in value to $200,000.00.  They decided to place this stock in a charitable remainder trust and reserved for themselves a $15,000.00 annuity for the rest of their lives.  They gave their assets upon death to their church, upon the death of the last survivor, Bob or Mary. Because of their gift, they avoided capital gains tax on the stock, increased their present level of income, and gained a huge tax deduction on their income for several years.  They have a guaranteed source of income and have added more stability to their lives.  Because of their religious beliefs, they are very content in knowing that their contribution will go for a needed purpose.

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