Charitable Remainder Trusts: What You Need to Know

If you are in the process of estate planning or just getting ready for retirement, you have probably come across the term charitable trust. Charitable Remainder Trusts, or CRT’s, allow families to create income and save on taxes, all while benefiting the charity of their choice. The following is a brief introduction to how a CRT works and why it might be beneficial for you and your family to look into going forward.

What Is a Charitable Remainder Trust?

This type of trust allows you to convert assets you already own, such as stocks and real estate, into ongoing income. CRT’s reduce annual income tax and estate tax upon the owner’s death (although the vast majority of estates are not subject to estate tax). There is also no capital gains tax when assets in the trust are sold, and it allows you to help a charity that has special meaning for you.

How Does It Work?

The owner of an appreciated asset transfers it into an irrevocable trust. Because the asset is removed from your estate, its value is not calculated when tabulating your estate’s value for tax purposes. Another major benefit is that you receive a charitable deduction on income taxes. You can name yourself or someone else to receive an income stream for no more than twenty years, or for the life of one or more non-charitable beneficiaries. The charity of your choice receives the remainder of the donated assets.

Why Opt for CRT’s?

A Charitable Remainder Trust allows you to have control over your finances and flexibility while offering an ongoing stream of income. It allows you to make a philanthropic contribution while reducing taxes owed and providing for yourself and loved ones.

What Assets Can Be Placed in a CRT?

A Charitable Remainder Trust can be funded with cash, real estate, publicly traded securities, and certain stocks. Highly appreciated assets are used to fund a CRT because their market value exceeds their book value, and therefore they will generate capital gains when they are sold. Ask an experienced estate planning attorney if you have questions about what can be placed in a CRT.

Pros and Cons

CRT’s offer the opportunity for the donor to help a public or private charity while receiving an annuity. They offer a stable source of income for the donor and/or their chosen beneficiaries for the life of the trust. A CRT lets you preserve the value of highly appreciated assets such as real estate while letting you be exempt from a large capital gains tax when the trust sells the property. You can also make a partial income tax charitable deduction when funding the trust.

A possible drawback of the Charitable Remainder Trust is that it involves an irrevocable transfer of assets, so anyone wishing to set up a CRT should have a thorough understanding of what the process involves.

For more information about Charitable Remainder Trusts or help planning your family’s financial future, contact Queens probate lawyer Richard Cary Spivack today.