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Is a charitable trust right for you?

Why establish a Charitable remainder The income tax deduction is based on charitable trust? trusts (CRT) the present value of the contribution that the receives at the end Charitable trusts are a popular way to A CRT is an irrevocable trust created of the term of the trust. The amount fulfi ll philanthropic objectives. People by the individual who contributes depends on the time horizon of the contribute to a charitable trust for the property. The trust makes trust, the age of the benefi ciaries, many different reasons, including: payments to one or more non- the rate of payout and the current charitable benefi ciaries for life or for • Desire to benefi t a specifi c charity applicable federal discount rate. or area, such as arts or education a predetermined number of years. At the termination of the income • Perpetuation of one’s beliefs, interest, a qualifi ed charity receives How is a CRT taxed? values and ideals the remaining assets of the trust. A CRT is generally treated as a • Desire to share one’s “good tax-exempt entity. Therefore, fortune” with others How are the distributions and the trust would typically not pay tax to the extent of any ordinary • Desire to reduce income tax deduction determined? or capital gain income. and estate taxes A special calculation is used to illustrate the options for the • Need to diversify investments payout and tax deduction available How is the benefi ciary taxed? without incurring immediate and based on the time horizon of the substantial capital gains taxes Income generated by a CRT that is trust, the funding amount and passed through (distributed) to the • Desire to increase annual income the applicable federal rate. non-charitable benefi ciary is taxable Two types of CRTs are annuity trusts according to a four-tier system. Which assets are best and unitrusts. In both cases, the This four-tier system of taxation to donate? minimum payout rate must be 5%. has a general “worst-in, fi rst-out” (WIFO) rule. Therefore, the trust’s Appreciated assets with low returns An annuity trust does not allow ordinary income from the interest held for more than 12 months are the for additional contributions, while and dividends would be passed best assets to donate because the a unitrust does. Also, the income through prior to capital gains. income tax deduction is based on the tax deductions are different. higher fair market value, rather than The annual distribution from an on the initial cost. As a tax-exempt annuity trust is a percentage of Can I replace my entity, the trust can sell the assets the initial contribution to the child’s inheritance? without recognizing capital gains tax, trust and will not change over Some donors use the income tax leaving the full asset value available the duration of the trust. deduction and a portion of the for reinvestment. Once the portfolio annual payment to fund an insurance is diversifi ed, the proceeds can very The annual distribution from a policy on the grantor’s life. When often be invested to produce income unitrust is based on the annual an irrevocable life insurance that exceeds previous income fl ows. valuation of the trust assets and, trust owns the insurance policy, therefore, the annual payment can the death proceeds are exempt fl uctuate. from estate tax. In this manner, heirs can be fully compensated for assets donated to charity.

Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affi liate, and are subject to investment risks, including possible loss of the principal amount invested. Page 2 of 2 Is a charitable trust right for you?, continued

Which organizations qualify • Family or private foundations as “charitable?” and supporting organizations enable a donor to maintain a Qualified recipients are charitable high level of control over donated organizations, such as not-for-profit assets. Private foundations schools, hospitals, churches and are subject to a number of public charities. Private charitable limitations and regulations. foundations may also qualify. Supporting organizations have substantial benefits, including Who can be a non-charitable the ability to qualify for maximum ? charitable deduction. Usually the grantor, grantor’s • A donor-advised fund is much like spouse or grantor’s children are a family . It can be used the noncharitable beneficiaries. as a vehicle for charitable . These individuals must be living Donor-advised funds are simple to when the trust is established. set up and are public charities, so a to the fund qualifies for the Who can be a ? maximum charitable deduction. The donor can be a trustee, but careful drafting is necessary What’s my next step? so you do not lose the benefits. Charitable trust planning requires Many grantors prefer to name meeting and planning with an an independent, professional attorney. If a lifetime gift is made, trustee. A professional trustee can the attorney drafts an irrevocable handle many of the complex issues trust agreement. If the gift is made surrounding this type of trust. at death, the charitable trust provisions can be part of your Other charitable trust tools will or living trust agreement. Here are a few of the charitable As a client of RBC Wealth trust tools in addition to CRTs: Management, you are able to take • A charitable lead trust (CLT) full advantage of our association provides an income to charity over with RBC Trust Company (Delaware) a specified period. At the end of Limited, City National Bank, the period, the trust is dissolved Comerica Bank & Trust, and TCA and the remaining assets are TrustCorp America. Talk to your distributed back to the donor financial advisor today about the or other named beneficiaries. benefits of professional trustee services. Not all products and • Remainder interest in a residence services are available in all states. arrangement enables a donor to transfer title of property to a charity, while continuing to occupy and enjoy the property for either the life of the tenants or a specified period of time.

Professional trustee services are offered to RBC Wealth Management clients by RBC Trust Company (Delaware) Limited (RBC Trust), City National Bank, Comerica Bank & Trust, N.A., and TCA TrustCorp America, which may serve as trustee. RBC Capital Markets, LLC, is a subsidiary of Royal Bank of Canada (RBC). RBC owns a non-controlling interest in TCA TrustCorp America. RBC Trust is a division of RBC. City National Bank is an affiliate of RBC Capital Markets, LLC and a wholly-owned indirect subsidiary of RBC. RBC Wealth Management and/or your financial advisor may receive compensation in connection with offering or referring these services. Neither RBC Wealth Management nor its financial advisors are able to serve as trustee. RBC Wealth Management and City National Bank do not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor. © 2020 RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC. All rights reserved. 20-62-03582_62109 (11/20)