Business, Legal & Accounting Glossary
n. a form of trust in which the donor (trustor or settlor) places substantial funds or assets into an irrevocable trust (a trust in which the basic terms cannot be changed or the gift withdrawn) with an independent trustee, in which the assets are to go to charity on the death of the donor, but the donor (or specific beneficiaries) will receive regular profits from the trust during the donor’s lifetime. The IRS will allow a large deduction in the year the funds or assets are donated to the trust, and the tax savings can be used to buy an insurance policy on the life of the donor which will pay his/her children the proceeds upon the donor’s death. Thus, the donor (trustor) can make the gift to charity, receive a return on his/her money and still arrange to make a large gift at death to his/her heirs. The disadvantage is that the assets are permanently tied up or committed.
A type of charitable trust in which substantial assets are placed in an irrevocable trust. The trust is set up in such a way that the donor (or other beneficiaries named in the trust) receives trust income for a set number of years or for life, after which the assets are transferred to a tax-exempt charity. The IRS allows a significant tax deduction in the year the assets are donated to the trust. The tax savings are sometimes used to purchase a life insurance policy on the donor’s life, which is payable to the donor’s children or grandchildren upon the donor’s death. In this manner, the donor can make the charitable gift, receive income from the trust, and still make a large gift to family members at death. Charitable remainder trusts are classified into two types: charitable remainder unitrusts and charitable remainder annuity trusts.
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This glossary post was last updated: 5th April, 2022 | 0 Views.