A charitable remainder trust (CRT) is a type of irrevocable trust. When made properly, it allows you to turn assets into income and make estate donations to charity while claiming several substantial tax benefits.
CRTs can be hugely beneficial to everyone involved, but they can also be complicated, so it’s important to work with an experienced estate planning attorney who can make sure you get all the potential benefits of a CRT without any unwanted surprises.
How a CRT works
A CRT allows you to convert highly appreciated assets (such as real estate) into income-producing assets. The trust will then distribute a fixed percentage or amount of those trust assets to you, or to any beneficiaries that you choose, for a specified period of time. For example, it could be your lifetime or a certain number of months/years after your death. Once that time period is up, the remaining trust assets are donated to the charity (or charities) of your choice.
Because CRTs involve charitable gifts, they provide some pretty great tax benefits while also preserving an income stream for you or your loved ones.
5 benefits of a charitable remainder trust:
1. Tax benefits
The goal of a CRT is to reduce taxes. When you put an asset into a CRT, you remove that asset from your estate. That means that CRTs essentially give you a way to distribute certain assets to your loved ones with no estate tax.
In order to convert the asset into income, the trustee gets to sell it at market value with no capital gains tax. At the same time, you also get to claim an income tax deduction for your initial contribution.
2. An income stream for you or your loved ones
An income stream is one of the biggest benefits of setting up a CRT. You can choose to have the trust pay you an income for the rest of your life if you wish. Or you can choose to have the trust pay that income to someone else, such as your children or other loved ones.
By setting up a CRT with an attorney you trust, you have the opportunity to make sure your assets are distributed exactly the way you want.
3. Contribute to a cause you care about
It goes without saying that setting up a CRT is a great way to give money to a cause you’re passionate about. A CRT gives you the chance to make a difference while also ensuring that you and your loved ones are taken care of financially.
Keep in mind that, in order to get tax benefits from your charitable contribution, the charity you choose must have tax-exempt status.
4. Preserve the value of highly appreciated assets
Putting an asset in a CRT allows the trustee to sell it at full market value because the trust is exempt from capital gains tax. This can be a big deal when it comes to assets that have greatly increased in value since you purchased them.
Several different types of assets can be put in a charitable remainder trust, including:
• Real estate
• Publicly traded securities
• Some types of stock
When a CRT is set up properly, everyone wins
A well-planned CRT is a win-win scenario. You, your loved ones, and the charity all benefit.
There are several different types of CRTs, so it’s important to examine all your options carefully to decide which is right for you, whether it’s a charitable remainder trust, charitable lead trust, or something else.
Work with an estate planning attorney to set up your trust
A skilled attorney can help you plan and structure your trust so that you, your loved ones, and your favorite charity receive the maximum benefit available.
The estate planning attorneys at Gevurtz Menashe have extensive experience with CRTs and other charitable planning strategies in Oregon and Washington. If you have questions or want to learn more, we’d love to help.
Call our Portland office at 503-227-1515, our Vancouver office at 360-823-0410, or contact us online to schedule a consultation.