September 1, 2020

Coronavirus May Generate Bonus to Charities

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

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. The coronavirus, as much as a scourge that it is, may help to initiate the best in people.

A charitable remainder trust is a popular estate planning strategy that could enable you to gift an appreciated property or security and retain a badly needed income for you and your family in this corona epidemic and beyond.

An asset that has highly appreciated in value such as a property (inherited house or farm or highly appreciated stock), placed in a charitable trust may qualify the donor for an income tax deduction. 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 payments. You can receive either a percentage of the value of the trust (a “unitrust”) or a fixed amount. With a unitrust, your payments 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 unitrust amount from 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.

While trusts offer numerous advantages, they may 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 advisors before implementing such strategies. But the bottom line remains – A charitable remainder trust may allow you to make a substantial gift to charity, avoid capital gains tax, receive other income tax benefits and provide regular income for you and your family in today’s difficult world.

Our agency continues to provide information for persons becoming eligible for Medicare via monthly virtual meetings. Since corona prevents us from hosting our monthly person to person informational meetings, we are taking advantage of today’s technology with laptop computers and cell phones. September 15 & 17 at 10 AM we will host our next round of virtual meetings. Tuesday September 15 we focus on the basics of Medicare then concentrate on the Medicare Supplement Plans available & Prescription Drug plans available. On Thursday Sept 17 we again review the basics of Medicare and then focus on the Medicare Advantage Plans. Call us to be included on these calls.

Filed Under: Finance, Retirement