If the client still has a strong desire to give, he could consider terminating the trust and donating his income interest, along with the charity's remainder interest, to the charity. This is often a good solution when trust administration expenses are greater than the income earned on trust assets. If your client is considering the termination of the charitable trust, he or she may have to get permission from the state's attorney general.
If the CRT's income stream is still desired, it may be possible to exchange the vehicle for a charitable gift annuity. The latter is a contract between the charity and donor in which the charity promises to pay an income to the donor for a number of years or for life. This will likely result in reduced income payments to the client, but the charity will have immediate access to the former CRT's assets. It is important to understand that the donor will no longer benefit from any future appreciation of the assets. The payments from the charitable gift annuity are fixed. In light of the market's impact on the charity's own endowment funds, it's important for the client to consider the health of the charity when choosing this option.
Always Consult Your Client's Legal And Tax Advisors
These are just a few ways to clean up existing estate plans that are at high risk of failing in their purpose, but none should be taken without the involvement of the client's legal counsel or tax advisors. All of the strategies have consequences and disadvantages that must be considered carefully.
Tere D'Amato is the vice president of advanced planning at Commonwealth Financial Network in Waltham, Mass. She can be reached at [email protected]. Commonwealth Financial Network does not offer tax or legal advice.