By Rodney J. (“Rod”) Hatley

One of the most effective tax planning strategies for the high-net-worth family is the Charitable Remainder Trust (CRT). For people who want to contribute to their favorite charities and foundations, the CRT provides multiple benefits. It can increase personal income, especially for retirement, while benefiting a charity and reducing tax exposure. And, it remains a very popular way for individuals to pursue their philanthropic goals.

The CRT also offers a certain degree of flexibility and control over your charitable beneficiaries.

CRTs are irrevocable trusts, which means you give up a lot of legal control of your assets. And, once established, you cannot change your mind about who has legal control. But, for many people, the benefits outweigh the downsides.

A CRT is also known as a “split interest” trust, which allows you to contribute to the trust while getting a tax break on the funds that go to the charitable beneficiaries. What’s so appealing about this arrangement is the flexibility to name yourself ― or anyone else ― as a recipient of income for a specified time, after which the remainder of the assets go to the charitable beneficiaries. The charity itself, a bank, or trust company can serve as the trustee and invests the money, pays you, or anyone you name.

Two Varieties

CRTs come in two varieties. The charitable remainder annuity trust (CRAT), which distributes a fixed amount annually. Additional contributions cannot be made.

The charitable remainder entrust (CRUT), distributes a fixed percentage annually based on an annual revaluation of trust assets. It allows additional contributions.

How To Set-up A Charitable Remainder Trust

Select your assets to transfer. Some of the best assets to contribute are cash, stocks, real estate, and stock in some closely held corporations (but not S-corporations). Select a charity or foundation that has an IRS approved tax-exempt status. Once you transfer the assets, a partial income tax deduction is available.

Identify the beneficiaries who will receive the income. You define the timing of the income, which can be annually, semi-annually, quarterly, or monthly.

Define the time frame of the trust. This can be up to 20 years, or upon the death of the last surviving beneficiary. After that, the proceeds are distributed to the charitable beneficiaries.

Summary of Major Benefits

  • A CRT is a great tool to preserve full fair market value of assets that have significantly appreciated over a long period, such as non-income producing properties and publicly traded securities. With a CRT, you avoid capital gains taxes and that creates more income and provides more value to the charities.
  • The partial income tax deduction when you fund the trust is an attractive feature. Plus, you reduce your income taxes while you’re alive and estate taxes when you die.
  • Investment income from a CRT is tax exempt, which makes it an excellent option to donate low-basis assets to the trust. Once sold, those assets avoid capital gains tax. But, the income beneficiary will pay income tax on the income stream.
  • After you die, your spouse can continue to receive income until she passes away.
  • You have helped others with your charitable causes.

The CRT is a reliable way to generate income for yourself, your family, and your heirs while participating in philanthropic activities. Though there are many philanthropic vehicles, the CRT is one of the best because it benefits so many while preserving your assets along the way.

If you have questions about setting up a Charitable Remainder Trust, then please contact me. I look forward to helping you preserve your financial legacy.

What To Do Next:
Estate planning and asset protection can be deceptively complex. Not only do state and federal laws change, but every family situation is different. Seemingly small choices in how planning is done can have profound tax and family implications, and not having a plan in place can be worst of all.

Rodney J. Hatley offers clients a No Hassle Estate Planning Strategy Meeting, where they get experienced guidance on how to achieve total asset protection, long term security, and peace of mind for themselves and loved ones.

If Rodney J. Hatley is not the right attorney for the case, he will point you in the right direction. Just call his office at (858) 792-3444 to schedule. Visit Rod’s website at www.hatleylawgroup.com.