News and analysis
July 10, 2014

Surge of Remainder Trusts Seen as Baby Boomers Age

The oldest of America’s 72 million baby boomers are turning 68 this year, the average age at which individuals create charitable remainder trusts. That’s likely to produce a surge in such gifts during the next 20 years, predicts Robert Sharpe, a planned-giving expert in Memphis.

Aside from the factor of demographics, more people will be interested in charitable trusts because of recent tax changes that increased the amount of capital-gains taxes they will owe after selling a business or other asset.

Charitable remainder trusts can be set up in various ways. Typically, the donor enjoys tax benefits from establishing the trust and draws an income from it for a specified period; the funds in the trust go to a charity after the trust expires or when the donor, and in some cases a spouse or other heir, dies.

The biggest benefit to charities under such arrangements is that unlike bequests, which can be altered or withdrawn when a donor gets remarried or simply changes his or her mind, charitable remainder trusts are irrevocable.

"A lot of multimillion-dollar bequests never come through," says Mr. Sharpe.

Also, charities often see the money materialize sooner than with bequests.

Charitable remainder trusts increased fourfold from the mid-1980s until the late 1990s. Then, a combination of demographic, economic, and tax conditions made them much less popular. That situation is now changing, says Mr. Sharpe, who recently published an article about trends in charitable remainder trusts.

With 10,000 baby boomers a day turning 68, fundraisers should understand how their organizations and potential donors can benefit from charitable remainder trusts, he says.

For example, a charitable remainder trust could be well suited to a 60-year-old donor who needs income for 10 years until he begins mandatory withdrawals from his retirement plan. For a donor in his late 40s who sells a business and wants to make a gift but is concerned about putting his children through college, a charitable trust established for seven or eight years could make it possible to bypass capital-gains taxes while providing income needed for the costs of education.

Other planned-giving experts agree that interest in charitable remainder trusts is likely to grow, as a result of increased income and capital gains taxes many people now face. Some doubt, however, that many donors will choose a charitable trust that only provides income for a certain number of years over the far more common practice of creating trusts that generate personal income until the death of the donor, spouse, or other family member.

"You have a swell of people heading into retirement when they start thinking about the income levels they will live on," says Kathryn Miree, a planned-giving lawyer in Birmingham, Ala. "The interest I have seen is in more traditional charitable remainder trusts, offering payment for life."

Send an e-mail to Holly Hall.