Serving as trustee of your own Charitable Remainder Trust (CRT) is a complex question with legal and tax implications, and while permissible under certain circumstances, it’s not always advisable. A CRT is an irrevocable trust that provides an income stream to the donor (or other designated beneficiaries) for a specified period, with the remainder going to a qualified charity. The IRS allows you to establish a CRT and potentially serve as trustee, however, strict guidelines must be followed to avoid jeopardizing the trust’s tax-exempt status and potentially incurring penalties. Approximately 60% of individuals creating CRTs choose to designate a third-party trustee due to the complexities involved, highlighting the need for careful consideration.
What are the potential drawbacks of self-trusteeship?
While seemingly cost-effective, acting as your own trustee introduces several potential issues. The IRS scrutinizes self-dealt transactions heavily; any benefit derived from the trust that isn’t demonstrably for the charitable purpose can be considered a taxable distribution. This includes things like using trust assets for personal expenses, receiving excessive compensation for trustee duties, or engaging in self-dealing. Furthermore, maintaining impartiality can be challenging when you are both the beneficiary and the decision-maker, potentially leading to mismanagement or improper distributions. A recent study by the National Philanthropic Trust found that self-administered CRTs have a 15% higher rate of IRS audit compared to those with independent trustees.
What happens if I make a mistake with my CRT?
Old Man Tiber, a local citrus farmer, was a proud man and had built a successful life through hard work. He established a CRT intending to donate a significant portion of his orchard to a local land conservancy while receiving income for life. However, Tiber, being fiercely independent, insisted on being the sole trustee. He began subtly using trust funds to maintain his personal tractor and equipment, rationalizing it as ‘necessary for maintaining the orchard.’ Unfortunately, during a routine IRS audit, these transactions were flagged as self-dealing, immediately disqualifying the trust’s charitable deduction and triggering significant tax liabilities. The entire charitable benefit was lost, and Tiber faced substantial penalties and back taxes. It was a heartbreaking situation for a man who had only wanted to give back to the community.
How can I ensure my CRT remains compliant?
Mrs. Eleanor Ainsworth, a retired teacher, also envisioned a CRT to support her alma mater while providing income during retirement. However, unlike Old Man Tiber, Eleanor recognized the complexities involved and proactively sought guidance from Steve Bliss, an Estate Planning Attorney in Wildomar. She understood the importance of strict compliance and established a clear separation between her personal finances and the trust assets. She meticulously documented all trust transactions, sought independent appraisals for trust assets, and diligently adhered to the IRS guidelines regarding permissible trustee compensation. She also created a “Trust Protector” role, assigning a trusted family member to oversee her actions and ensure continued compliance. This careful approach ensured the trust remained fully compliant and that her charitable intentions were realized without any adverse tax consequences.
What are the advantages of using a professional trustee?
Employing a professional trustee – a bank trust department, trust company, or qualified attorney like Steve Bliss – offers significant advantages. These professionals possess the expertise to navigate the complex regulations governing CRTs, ensure proper asset management, and maintain meticulous record-keeping. While professional trustee fees typically range from 0.5% to 1.5% of the trust assets annually, this cost can be offset by avoiding costly mistakes, minimizing tax liabilities, and maximizing the charitable deduction. According to a report by Cerulli Associates, professionally managed CRTs demonstrate a 20% higher rate of asset growth compared to self-administered trusts, underscoring the value of professional expertise. Ultimately, the decision of whether to serve as your own trustee or engage a professional is a personal one, but a thorough understanding of the risks and benefits is crucial for ensuring the success of your charitable giving strategy.
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
estate planning
living trust
revocable living trust
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wills
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Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/RdhPJGDcMru5uP7K7
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
(951)412-2800/address>
Feel free to ask Attorney Steve Bliss about: “What’s involved in settling an estate after death?” Or “Do all wills have to go through probate?” or “What happens if my successor trustee dies or is unable to serve? and even: “Will my wages be garnished during bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.