Pitfalls Behind Charitable Remainder Trusts

While there are both notable advantages and disadvantages to a charitable remainder trust, there is one element of charitable remainder trusts that is too often glossed over: the clients are giving up the steering wheel.

“You are giving up control of your money.” Before clients set up a charitable remainder trust, ensure they will not be depending on the income stream generated from the assets intended to put into the trust.  This is because clients have given up control of the assets, no longer qualifying that income stream as reliable. 

Unforeseen financial events, such as a sudden large jump in income stream, may prompt clients to embrace the idea of a charitable remainder trust.  However, the tax advantages of a charitable remainder trust should not divert clients’ understanding that the trust is irrevocable.   “Don’t allow the investment benefits or tax privileges or preferences to be the only reason you are going to go down this path.  You are not likely to find that you and your heirs are going to be better off as a result.  It should not be seen as an edge for investing.  You should do it because you have a charitable intent.”

See Miriam Rozen, Hidden Pitfalls of Charitable Remainder Trusts, Financial Planning, Nov. 10, 2014.