When you are planning your estate it is likely that you have multiple objectives in mind, and if you’re like most people making sure that your loved ones are provided for is at the top of that list. To make sure that your family members get everything that you would like to leave them without allowing a significant portion of their inheritances to go to the IRS you sometimes have to take steps to gain estate tax efficiency. At the present time the estate tax exclusion is $5 million, but if no changes are made in the meantime it is going down to just $1 million at the end of 2012, and this is something to keep abreast of during the upcoming election season.
In addition to protecting your assets from erosion as you pass them along to your loved ones you may also feel the desire to make charitable giving a part of your legacy. There are a number of charitable giving vehicles that people utilize when they are planning their estates, and one of them that provides multiple benefits is the charitable remainder unitrust or CRUT.
These vehicles provide an ongoing source of income to the non-charitable beneficiary during the term of the trust, and then when the term expires or the grantor passes away the charitable beneficiary assumes ownership of the remainder. Most the time the grantor will act as the beneficiary and receive the annuity payments from the trust, which must be at least 5% and no more than 50% of the value of the trust per year. Once the term has concluded or upon the death of the grantor the charitable beneficiary must receive no less than 10% of the original value of the trust.
The creation of the trust removes these assets from your estate for estate tax purposes, and you are also entitled to a charitable deduction that is calculated via valuation of the remainder interest. Additionally, if you were to fund the trust with appreciated securities you could have the trust sell them and your capital gains liability would be spread out rather than being due all at once.
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