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A Charitable Giving Strategy

Updated on August 9, 2017

Charitable Giving

Building Wealth

Charitable giving is something many people aspire to, however, they perhaps never feel "rich enough" to write that big check to a cause they are passionate about. There are many other more important things that money needs to go towards, such as funding retirement, or basic necessities of life, or luxury items to improve life and make it more enjoyable.

With that said, the first step to building a charitable strategy is to build personal wealth. Personal wealth can be built in many different ways. Many people build wealth using real estate, or perhaps as a business owner, or maybe its just from simple stock investing. Each of these methods can work if the person is diligent, hardworking, and has a little luck on their side. But as with any charitable giving strategy, the giver must have something to give! So this is the first step.

How to Begin This Charitable Giving Strategy

As a person builds wealth, they may like to give some of it away, but they may want to primarily enjoy it and let it be a boost to their personal balance sheet as well. And perhaps, after they are dead and gone(and not until then), they'd like specific money or assets to be earmarked for different charitable causes they are passionate about. But how can a person reap the tax benefits today and enjoy the money during retirement while at the same time setting aside the money to give away in the future, after their gone?

The answer is simple. The answer is, by setting up and implementing a charitable remainder uni-trust. A charitable remainder uni-trust is a trust that a person can gift money to while reaping the tax benefits of giving today, take income from the trust during retirement years, and rest assured that the money will be given to the charity in the future after their death. Sound too good to be true? It isn't.

Before we dive into the details of a charitable remainder uni-trust, it would be a good idea to share a brief explanation of what a trust is. A trust is a legal entity created by the "trustor" for which a second party called the "trustee" can manage the trustor's property according to the will of the trustor, for the benefit of a third party called a beneficiary. There are two basic types of is called a revocable trust and the other is called an irrevocable trust. A revocable trust can be modified or adjusted after it is first created. An irrevocable trust can never be modified, adjusted, or terminated after it is created. A charitable remainder uni-trust (or CRUT for short) is an irrevocable trust which means it cannot be changed once it is in place.

You'll certainly want to consult with a legal professional in order to set up a CRUT. When setting up a CRUT, you need to decide a few things.

  • First, you'll need to determine what assets you will gift to the charitable remainder trust.
  • Second, you'll need to decide who will be the trustor to the trust. Will it be one person or two person?
  • Third, You'll need to determine at what point or year in the future you will begin taking income from the trust.
  • Fourth, you'll need to determine what percentage amount relative to the assets in the trust, you want to withdrawal each year as income. The maximum you can withdrawal is 50% per year. Beware that the higher withdrawal rate that is chosen, the lower the initial tax benefit that you will receive(which only makes sense). There are also stipulations and tests surrounding the withdrawal rate that will need to be tested.
  • Fifth, you'll need to decide what length of time you would like to take income from the trust before the money inside of the trust goes to the beneficiary(the charitable organization). You can choose to take income all the way up until death if you want. Or you can choose a predefined period of time such as 10 years...its up to you, the trustor.

Benefits Of A Charitable Remainder Uni-Trust

A charitable remainder uni-trust has many benefits that have already been mentioned...but let's cover those with a little more detail.

The first benefit(s) are tax benefits. There are two main tax benefits that a person can get by gifting money to a charitable remainder uni-trust. First, typically a person will gift assets to the trust that are highly appreciated in value above and beyond the tax or cost basis. This is because if the trustor where to sell or liquidate these assets outside of the trust, they would have to pay a large capital gains tax from the sale proceeds. But if the highly appreciated assets are gifted to the trust, they can liquidate the assets inside of the trust without incurring any capital gains taxes whatsoever. Second, the individual or trustor(s) will receive an immediate income tax deduction for their gift to the trust that is in proportion to the amount of money gifted to the trust, the amount(percentage) of money that will be withdrawn each year, and the length of the trust in years. Based on these three factors, an actuarial charitable trust calculation is made and in order to calculate your income tax deduction from the gift.

The second benefit is that you can continue to receive income from the assets inside the trust. This can be a huge plus because if a person wants to liquidate the assets, they can avoid a large chunk of taxes by liquidating inside the trust which means they will have more income from the money. Now any income taken from the trust will be taxed at the highest tax rate possible first, which is typically your ordinary income tax rate...but if "ordinary income" from the trust is depleted, then it will be taxed at the next highest rate, which is usually the capital gains tax rate(which could be quite a bit lower than the ordinary income rate depending on a person's situation). Income taken from the charitable trust can be a great supplement to an individual or couple's retirement strategy. In a lot of cases, you could potentially end up receiving more income from the money inside the trust, than you did outside of it.

The third benefit is that ALL of the money gifted to the trust will be given to charity at the end of the trust's life. Whether that is at the trustor's death, or at the end of a predetermined period like 10 years, the charity will be able to put the money to good use operating the charity to the benefit of the cause that you care about.

Charitable Remainder Uni-Trust For Retirement

"Sweeter than the perfume of roses is a reputation for a kind, charitable, unselfish nature; a ready disposition to do to others any good turn in your power."

— Orison Swett Marden

A CRUT Strategy Recap

A CRUT or charitable remainder uni-trust can be a great way to gift money to charity in the future, while receiving the tax benefits today. Be sure to consult with your legal professional to make sure the trust documents are set up correctly and everything is in good order...after all, any time taxes are involved, Uncle Sam can be very strict.

When setting up the trust, there are certain things that you'll need to set up the trust in a way that suits your personal situation.

To summarize the benefits of a trust, by gifting money to the trust, you'll give money to charity in the future, receive tax benefits today, and be able to receive income for retirement or whatever purpose you choose.


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