Client Alert

Save Money And Reduce Taxes With A Charitable Remainder Trust

Whether you want to donate money as a budding philanthropist, avoid taxes or diversify your investment portfolio, Charitable Remainder Trusts (CRTs) can be a good way to accomplish all three goals at once. Before creating a CRT, it can be helpful to have a basic understanding of how they work and the terms.

An Overview Of Charitable Remainder Trusts

When you create a CRT, you will first choose the trust’s beneficiaries, such as you and your spouse. Next, you must select a charity that will receive the remainder of the trust assets when it ends. The trust becomes funded when you make irrevocable contributions as a donor. You have the option to contribute a variety of assets to a CRT, including cash, real estate, stock and publicly traded securities.

With Charitable Remainder Annuity Trusts, you may not make any additional contributions following the initial donations. In contrast, you can donate assets through the lifetime of a Charitable Remainder Unitrust. Depending on the type of CRT, you will receive distributions based on fixed annuities or percentages of the trust’s balance during its lifetime, which cannot exceed 20 years. At the trust’s end, the remainder of assets will be donated to charity.

Using CRTs To Bypass Taxes And Increase Investments

There are ample tax benefits that accompany CRTs, including:

Capital gains taxes are avoided – The trustee can sell appreciated assets that are held in a CRT without paying capital gains taxes. By selling appreciated assets, the trust’s balance can grow tax-free without making additional donations.

Contributions are tax-deductible – Your total income tax liability will be reduced as your contributions will not be taxed.

Estate and gift taxes are lowered – When you contribute assets to the trust, they are no longer a part of your estate and will not be subject to estate tax. Your contributions can also avoid gift taxes.

Creating a CRT can be a complex process and you want to ensure that you can take advantage of all of the benefits they have to offer, while also understand the possible downfalls. Discussing your options with a qualified estate planning attorney can be the key to protecting your assets and minimizing tax burdens.

Posted in Client Alert, Taxes / Laws, Trust.