Estate Planning and Charitable Remainder Trusts

A Charitable Remainder Trust (CRT) allows you to donate to your favorite charity while benefitting yourself. It allows you to defer capital gains on the sale of appreciated asset, receive income, take advantage of a current income tax charitable deduction and receive future estate tax deductions.

A CRT works best with a highly appreciated assets like real estate or stocks which provide little or no income. Owning this kind of asset has problems because you cannot sell it without paying high state and federal capital gains taxes. But if the asset is still in your estate when you die, it will increase your estate taxes. If you donate the asset to a charity today you will enjoy the tax deduction but you will miss out on the income the asset could generate. A CRT overcomes all of these problems.

A CRT is created as follows: You designate your trustee so you remain in control of the investment decisions. The term of the CRT is based on a term of years (not to exceed 20) or over an individual’s lifetime. The CRT states that whenever the term of years or the lifetime is over, the remaining trust assets go to the charity.

You transfer the highly appreciated asset to the CRT in return for the trust’s obligation to pay you an income stream over the term or lifetime in an amount computed using expected length of the income stream and the expected earnings rate.

The CRT sells the appreciated asset but pays no tax because of its favorable tax status. It pays from its liquid assets an income stream for the term you have designated. After the term is over, the CRT distributes any remaining assets to the charity and the CRT terminates.

Consult your estate planning attorney for further information.

badges