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Top 10 FAQs about Charitable Remainder Trusts

Top 10 FAQs about Charitable Remainder Trusts

April 23, 2024

There’s so much to consider when it comes to estate planning, especially around setting up a trust and making sure your legacy will be safely passed onto the generations to come. 

If you’ve decided to include charitable giving in your estate plan with a charitable remainder trust, the process of setting one up can feel challenging and overwhelming. Chances are that you have some questions before you sign on the dotted line, and making sure you know the answers is a responsible first step.  

Review some of these frequently asked questions about trusts to ensure that a CRT is the right move for you, your beneficiaries, and your financial future. 

Can I set up a CRT myself? 

Technically, you could set up a charitable remainder trust on your own or with an attorney, but it may not be your best option. Trusts of any kind can be complex legal structures that involve not only financial know-how, but legal, tax, and real estate expertise, too. 

If you want to get the most benefit from the trust, it’s essential to understand all the best CRT management strategies and techniques that can minimize risk and protect your legacy.

Magellan can help you save money on taxes which will offset the initial cost. We offer a done-for-you service that helps you through every step of the process. Our setup does not offer a la carte services. 

What if I have an existing charitable remainder trust?

One frequently asked question we hear is what happens if you already have a charitable remainder trust. You can have as many trusts as you want. Since CRTs are irrevocable, you can’t combine trusts or add to an existing one (unless it's a CRUT). But if your financial picture has changed and you have more funds or assets you’d like to protect in a trust, you can set up a new CRT.

Many people come to us with a CRT already in place, and we can still help. Allow our legal team to review your documents free of charge. As long as everything is above board, we can welcome you into the fold of our managed trust services by managing your existing trust or helping you establish a new one.

Can I buy real estate from myself with trust funds? 

No, you may not buy real estate from yourself because this falls into self-dealing. For more details on real estate and CRTs, see our complete guide on investing real estate in a CRT here. 

Can my CPA do the tax return? 

If your charitable remainder trust is under our umbrella, you must have your return prepared in-house with our team of professionals. It is more cost-effective this way as CPAs often have to familiarize themselves with the details of your CRT before they can prepare your taxes. Coordination with an outside CPA is time-consuming and may not be in your best interest.  

Learn more about filing taxes with your CRT here.

In which states can I set up a CRT?  

You may set up a CRT in any state or territory you want.

If you choose to work with Magellan for your CRT, you do not necessarily have to travel to us in Atlanta. We have relationships with attorneys in almost every state and can arrange for you to execute all of your documents closer to home. 

What if I want to change the charitable beneficiaries of the trust?

While a charitable remainder trust is an irrevocable trust, you do still have some leeway if you ultimately decide to change your charitable beneficiaries. It may not be as simple as placing a call to Magellan though. Instead, you will need to file a trust amendment.

One strategy is to name a donor-advised fund (DAF) as your charitable beneficiary. With a DAF, you don’t have to choose a charity (or charities) right away, and it’s much easier to change the charity down the road.

What if I want to change the payout rate of non-charitable beneficiaries? 

Unfortunately, the only thing you can change on a charitable remainder trust are the charitable beneficiaries. 

In an irrevocable trust, you will not be able to alter your beneficiaries or change the payout rate once the ink has dried on your prepared documents. This is meant to ensure that your wishes are followed explicitly in every situation. The right verbiage in your terms can offer a little flexibility, but it’s still limited and must be done with intention and care. 

Is setting up a T-CRUT the same as a regular CRT? 

In general, the setup for both a T-CRUT and a CRT is almost the same. The major difference is that a Testamentary CRUT will fund upon the death of the donor. The trust is created before death and lays the framework for beneficiaries to receive the benefits. This situation requires you to name the trust as the beneficiary of your IRA. Upon funding, it will start to pay out to your beneficiaries.

How significant is the tax characterization of trust distributions?

Tax characterization depends on the unique tax situation of the non-charitable beneficiaries. If a beneficiary is in a higher tax bracket, it might be better to maintain long-term capital gain tax characterization which is often taxed at a significantly lower rate. However, if the trust assets generate ordinary income, they will be taxed at the beneficiary’s ordinary income tax rate (or higher).  

Learn more about the taxation of charitable remainder trusts and how to minimize tax liability.  

What does it cost to set up a charitable remainder trust? 

If you decide that a charitable remainder trust is the right fit for you, prepare for the cost to set up a charitable remainder trust

A setup fee can range anywhere from $3,500 to $25,000 depending on the complexity and the specific type of CRT that you want to set up. 

For smaller trusts, you may also be required to pay an annual fee that can range from $1,500 to $8,000. More often, you’ll have to pay a percentage of the trust’s value, which could be anywhere from .5  percent to 1.5 percent depending on the value of the trust.

Magellan encourages our clients to compare our fees to those offered by others. We offer all of the services you need in a one-stop shop instead of allowing four or five different entities to charge fees on your trust. As fiduciaries, we will always act in your best financial interest. 

Our sister firms charge a flat fee rather than a percentage for accounting, tax reporting, and legal fees.

Protect Your Wealth with a Charitable Remainder Trust

We hope the answers to these frequently asked questions about trusts helped you understand the process and what to expect as you move forward. One of the biggest mistakes when setting up a trust is a lack of proper planning, so understanding the details and consulting with an experienced team will help you start on the right foot.

Magellan assists with comprehensive services that encompass estate, financial, legal, and tax planning. Everything you need to open a trust is available under one umbrella, making us your one-stop shop from the creation of the CRT to its ongoing financial management.  

Reach out to us today to learn more about how we can help you establish a CRT that will provide for your beneficiaries! 

 

This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC. 

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.