Maple leaves dance near the Pavilion / Photo by Julia Taylor

Charitable Trusts

Charitable Remainder Trusts (CRTs) can be one of the most powerful planning tools available as people do their retirement and estate planning.

CRTs afford the donor potentially five (5) favorable tax outcomes by virtue of one financial transaction:

  1. Capital Gain Tax Avoidance allows people to place an asset(s) in a CRT and avoid paying initial capital gain tax in the process.  For example, if you paid $100,000 for some property that is now worth $250,000 you can sell the property through a CRT without having to report the $150,000 of capital gain!
  2. An Income Tax Deduction is available to those who create CRTs.  You are able to receive a significant federal and state income tax deduction based upon a portion of the market value of the asset you place in a CRT.
  3. Tax-Free Compounding occurs on the asset(s) that is placed in a CRT.  For example, if you place an appreciated piece of real estate in a CRT and then sell it, the proceeds are typically invested in stocks and bonds.  Any investment growth inside the CRT will occur tax-free thereafter for as long as the trust is in existence.
  4. Income Taxed Favorably occurs as people receive their payments from a CRT.  Often, if invested carefully, the person(s) receiving income from a CRT may receive portions of that income taxed at long-term capital gain rates.  For many people, the long-term federal capital gain rate of 15% is less than their ordinary income tax bracket.
  5. Estate Tax Elimination can be accomplished for those with large estates.  Effectively, the value of the asset placed in a CRT comes out of the donor’s estate, thereby lowering the donor’s taxable estate.   As an example, if a couple has an estate valued at $24,000,000, and they place a $4,000,000 asset in a CRT now, often the taxable value of their estate might be lowered to $20,000,000.

Finally, life insurance can sometimes be a viable part of a CRT plan.  If the donor(s) want their loved ones to participate in the full value of their estate, then creating a life insurance trust with some of the CRT tax savings and additional cash flow can allow loved ones to “remain whole” as it relates to their inheritance.

You may consider a CRT if:

  • You want to increase your retirement income
  • You own appreciated stock, or real estate, that currently provides little income
  • You own a business

If you have an asset(s) that has appreciated significantly in value, and you are considering selling it, contact (insert best person’s name here) at (insert best phone number and email address here) for more information and to help discover whether this special trust arrangement is right for you.