Using a charitable remainder trust to pay for long-term care

Charitable remainder trusts are a type of irrevocable trust that allow someone to make a substantial gift to charity while continuing to receive income from invested assets.

This type of trust can provide an income stream for either a specified period of years or the remainder of the donor’s life. When preparing for retirement, many individuals choose CRTs as part of their long-term care planning.

How does a charitable remainder trust work?

CRTs are a form of “split interest trust.” The donor funds the trust by making a gift of assets to a charitable organization. However, he or she retains interest in those assets for the duration of the trust’s term, with beneficiaries receiving either a fixed dollar or fixed percentage each year. At the end of the trust’s term, the remainder of the assets in the fund transfer to the charity.

Many individuals use the income from a charitable remainder trust to pay for long-term care services for both themselves and their spouses. For example, the terms of the trust may specify a retained interest to the donor for his or her lifetime and then to the donor’s spouse for his or her lifetime.

What are other potential benefits of CRTs?

CRTs also have other potential benefits. Donors may receive a deduction on income tax returns at the time they fund the trust. Additionally, assets in the trust are no longer part of the donor’s estate and may be eligible for an estate tax charitable deduction. Finally, the trust may sell investment funds without paying capital gains tax, potentially allowing for more options for asset protection and management.



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