Monthly Archives: September 2020

The last in our series of articles on trusts is a Charitable Remainder Trust, or a CRT. This very specialized trust is typically used by people that are interested in philanthropy. They often want to create a legacy both while they are alive and after they die. They are planning to make donations to their favorite charity, but still need to have money to spend during their life.

In terms of how a CRT works, it is good to go through a primer on how a trust in general works. In simple terms you create the trust, or your box. Then you will title your assets in the name of the trust. From there you will name a trustee, or the person that will put things into the box or take things out of the box. The trustee will have the ability to sell the assets in the box so that it becomes liquid cash. While the person writing the trust (also known as the grantor) is living, they will still get cash to live off. The intent of the trust is to make sure that person is taken care of and will lay out the details of what is expected while the person is still living. Once the grantor of the trust dies, the trustee will then take the assets that are in the box and distribute the proceeds to the specified charity or charities. Obviously, the mechanics of this arrangement are a little more complex, but this is what happens in its simplest form.

You may ask, why would someone want to do this? Why would you create a CRT instead of just “willing” the assets or cash to the appropriate charities? Like any other legal question, there are a many different reasons. We will not get into the details of each of them specifically. The reasons could span from wanting to convert an appreciating asset such as land into lifetime income. From a tax perspective, you may want to reduce or eliminate estate taxes. It’s also possible that you are in a position that you want to decrease your current income taxes with a charitable income tax reduction or you may want to avoid a capital gains tax when selling the asset. You also have the assurance that when you die, you know that your money is going to go to fulfill the objectives that you set. There really is no room for anyone to object to your donation if the trust is set up appropriately.

From the charity’s perspective, they would be in favor of this sort of a plan simply because it helps them to be able to budget in future years. They may not know the exact timing, but they certainly would know the approximate amount that they are set to receive in the future. Once the trust is developed and put into place, they know that can plan on fulfilling the mission of their organization whether it is a medical research group, a church, a scholarship or any other directive that they set out accomplish.

When it comes down to it, the process of setting up a charitable remainder trust is just like every other part of estate planning. You need to work with professionals to make sure your goals are accomplished. You need to think about what you want and build your estate plan appropriately. The government gives you avenues within tax codes and legal devices to accomplish most of your goals. You just need to plan wisely and that includes benefiting your favorite charity.

Imagine you have a child that, for whatever reason, you are concerned does not have the capability to care for themselves when they grow up. It could be that your child is autistic or has muscular dystrophy or any other condition. Whatever the reason, they just will not be able to care for themselves when they are adults. In most cases, we, as parents, are not able to be there for our kids for their entire lives. It is the sad reality that we, those of us that have kids with disabilities, must live with.

That is where a special needs trust comes in to play. Obviously, a trust cannot make you live longer so that you can be there. It cannot magically make it so your child can care for themself. What it can do is provide a financial structure your child’s life so that they can be taken care of. They will be taken care of financially. They will be taken care of physically. And if structured well, it can help them to get services that they may need from social services.

You may be asking yourself, “how in the world can this work? I feel all alone in taking care of my kids now, how can anyone possibly take care of my kids after I am gone?” If you remember back to our last few posts, you will recall what a trust is. If not, we suggest you read this blog about how a trust is structured as it will help to understand this specific type of trust. Essentially, a special needs trust is an empty box that has your child’s name on it. Everything that goes into that trust is there to benefit your child.

For example, say that when you die, you have a life insurance policy. Of course, you want your child to have that money. On the other hand, you do not want your child to oversee that money because it could lead to a litany of bad outcomes. You may be opening your child up to have to pay more for medical treatments rather than the state pay for it in which all that insurance money will be paid to a hospital or health care facility. You may be disqualifying your child from receiving the services that they need because now they “have too much money”. You may be opening your child up to predators that are going to try to fraudulently take that money from your child.

Any of those reasons are scary enough to make you want to plan. Rather than giving your child that money outright, the government has given you the ability to create that box, a special needs trust, to store all that money that you have given them. This holds true for any asset that they may accumulate from you, grandma and grandpa, your rich uncle, or any other means. When you create this box, you also designate someone to be the person who controls the box. They are called the trustee and is usually someone that is close to you and is very trustworthy. The trustee can determine how much money comes out, when it comes out and why it comes out. They can be required to give an accounting each year so you can guarantee that even the trustee must answer as to where the money is going.

Additionally, you can determine who is the guardian of your child. They would be the person that oversees the actual care of your child. By splitting up the duties, you can make sure that each of these people are accountable. Again, it is not that you do not trust the people you put in charge, but it is a checks-and-balance to make sure that your child is well taken care of.

While planning for this may seem like a bit of a stressful exercise, it is well worth it. Again, you can make sure your child is taken care of physically, not going to financially devastated by someone fraudulently stealing from your child, and make sure they receive the services that they need to be a productive

adult. It does take some advanced planning, but it is worth it to make sure your child has every opportunity even after you are gone.