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  • Writer's pictureJohn Brandy

Charitable Remainder Trusts | Simple Success Podcast

What on Earth is that?

It’s a gift of cash or other property to an irrevocable trust. A simple way to let everyone know, in advance, what you want to have your money do for you…and for others…and, even after you’re gone.

If you reach your goals, and you get to a point in life where you have complete confidence in yourself and your money, then you can entertain some additional possibilities for income, and this is one of the possible ways that could work for you.

Our goal is to allow you to have enough comfort today and tomorrow to open up destinations in your mind that might be different than you’ve had before, or perhaps in addition to ones you’ve had.

There's a lot of technical details we can go into like how a Charitable Remainder Trust, or any of a number of different types of charitable trusts, is a type of a split-interest trust, how the powers that be look at trust assets, and how the beneficiary of a charitable remainder trust must be an organization described in Internal Revenue Code section 170 subparagraph C. The rules matter.

That could be a private foundation, a religious organization, a public charity or even something called a DAF, or Donor Advised Fund. Gifts like these can be interesting and beneficial uses of the property and a way to reach a charitable beneficiary or other income beneficiaries in a way we might want to talk more about.

There are other considerations like cost, and like giving the power of changes to the trust to an independent trustee so that there's no risk of the money ending up in your estate at the end of any given period where it gets taxed, and where that money does not go to your income beneficiary. Nobody gets that all-important income tax deduction, let alone the possible additional psychological benefit of a charitable deduction.

It can be important to have a revocable trust, and it can be important to have an irrevocable trust. The type of trust is a consideration when taking stock of this picture.

There are more details to CRTs, as they’re known, than you really want to know, or at least are ready to know.

What I want to convey is that I can help you with that if you are ready to make those kinds of contributions. If you want to cash in and if you are ready to put capital there, let me know and let's talk in more detail.

But more than that, it's separating the idea of understanding the topic from the idea of getting caught up in the topic before it’s time, then further, not letting there be a gap between understanding and doing.

I'm reminded of my absolute favorite quote, and it’s not one that I came up with, it's F. Scott Fitzgerald’s “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.”

This means that you understand how something works even if you don’t agree with it.

We could dive deeper into how it’s not really possible to disagree with something which you don’t understand, but that’s for a different podcast.

By the way, that’s another method for avoiding rabbit holes.

So, understand it but don't let it stop you.

That's the gist of it.

Story time

Once upon a time our friend Daniel Rose was considering what to do.

He had a choice to make regarding whether or not to leave all of those extra assets that he saved to his son Brian or to his favorite charity, or at least one of his favorite charities.

He was perplexed about this. The charitable income tax seemed to be the only source of the returns he was seeking.

He thought that he had to make a choice between the two kinds of investment income.

He didn't realize that he could do both - that he could have both payouts.

Because he didn't know he went to some independent or at least theoretically independent sources.

He consulted people who would know. People who SHOULD know.

But he didn’t consider their position – their bias, if you will.

He didn’t consider how it fits THEIR goals.

Like for instance, if someone is offering a product, you, like Daniel, need to consider why they are doing it.

If their motivation is for you to consider only your family and zero charities, then their advice will lean that direction.

If their motivation is for you to consider only charities, then the same thing is true.

In reverse.

If you doubt this, bring to mind a time back in 2008 when lots of people were telling you about your so-called 201(k). I promise you they were not selling stocks. Full disclosure: they were selling real estate, and I’m not against real estate. Just full disclosure.

We have to focus on what you and I, in our individual situations, think is right. The areas from which we get our potential income streams can mean the difference between income for life and being forever tied to figuring out new sources of funding for your lifetime income.

I prefer to start by understanding, so that I get the initial funding decisions right.

Get advice from somebody who also understands what you want to do and why you want to do it.

How we overcome this is

First, we make a decision about what we want to see done.

What is our goal?

What is the feeling we want to create?

What is the result we want to generate?

What makes us happy? What “floats our boat?”.

For many people it’s taking care of family as well as self. Having a solid future income stream will go a long way toward this.

For many people it’s giving a charitable gift annuity to one or more charities as well. Using trust income for that can be huge.

You can consider yourself and your family as the most important charities if you want.

That's valid estate planning because whether or not you have a sizable estate, you will have estate taxes.

I’ll take any answer as long as you’re willing to think about it first and revise it from time-to-time.

Just don’t let things get in the way – there’s a ton of things that could if you let them, but you won’t.

You won’t think about when you’re gonna retire.

You won’t think about taxes, or income limitation. Heck, you won’t even think about last night.

I’m not saying that any of the things you could spend time thinking about are bad things.

I’m just acknowledging how our brains work and making that fit in with the habits we develop and the things on which we focus.

We’re changing the way we look at things, and

Remember, “THAT’S GOOD”.

Also remember, this is Financial Life Coaching from A Happiness Perspective! Coaching Happiness.

In Conclusion, Remember

Even seasoned financial advisors hear about Charitable Remainder Trusts less often than a bystander might expect.

They are far less well-known than 401(k)s even though they can be critical for estate tax purposes.

Is that too ridiculous a thing to say? Nope.

There are so many people explaining 401(k)s that it has to be a serious question. I just answer it here in a practical way instead of the official way.

So, Step One again: Identify your goal.

Certainly, that includes you doing well.

Does it also include others in your family?

Does it include others outside your family?

Even if it’s not a 501(c)(3) organization?

We…most importantly you…have to have this firmly in mind before we can consider specific solutions.

Is a Charitable Remainder Trust even what you want? Maybe you want a Charitable Lead Trust instead. Maybe both! Maybe neither!

We need to get an expert involved for that.

Step Two is: Have a legal advisor and a tax advisor that you trust to do a trust.

Those are the two things that I want to know before we go even a word farther.

One, what is your goal for your money,

And two, do you have a lawyer that you trust to do a trust?

Those are the steps to complete before you even allow further thoughts to enter your mind.

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