As your parents age, they will start to transition out of the workforce and into retirement. Most people in the Baby Boomer generation have worked years to get to this point, building comprehensive estate plans to fund their twilight years and provide for their heirs.
However, some people reach retirement age without the proper preparations. If you fear your parents have not financially prepared for retirement, you can help them establish a charitable remainder trust (CRT).
CRTs can preserve their legacy
A CRT occupies a unique place among estate plan documents. Trusts allow people to set aside assets or property in tax-safe havens, allowing older individuals to avoid estate taxes and probate court when distributing inheritances. A CRT works similarly but reserves the entrusted assets for your parents’ charity of choice while providing reliable income throughout their twilight years.
Your parents can benefit from CRTs through:
- Tax deductions: Your parents will secure a one-time deduction for the value of the donated asset. A larger donation will net a larger deduction.
- Income: CRTs provide the grantor steady income throughout their retirement. Though your parents will transfer ownership of the asset to the charity, they will retain the asset’s income for life.
- Asset growth: Should the asset mature within the trust, all growth will accrue tax-free. Removing the trust funds will incur taxes eventually, but these deferments can prevent huge tax losses.
- A lasting legacy: Your parents can choose any charity they want to benefit, perhaps setting up a CRT with a local community center, university or church. A CRT can help establish your parents’ legacy with this important organization and ensuring a lasting impact for years to come.
- Avoiding capital gains taxes: If your parents grant a parcel of land through a CRT, the charity can sell the property and retain the proceeds in the trust, tax-free. Should the trust reinvest the proceeds, your parents’ will enjoy an increased income.
Ask a lawyer about ways to preserve your parents’ estate
If you worry about your parents’ financial situation as they approach retirement, you are not alone. A local attorney familiar with estate planning for retirement can draft a CRT, explore other trust options and provide insight into working with elderly parents.