What is a charitable remainder trust?

Q: What is a charitable remainder trust?

-Curious

Dear Curious:

A charitable remainder trust (CRT) is a unique estate planning tool that allows you to avoid taxes when you sell highly appreciated assets like stock and real estate. Moreover, a CRT can create a valuable income stream for yourself or your family AND support your favorite charity.  

When you create a CRT, you name a trustee, a charitable beneficiary, and a non-charitable beneficiary (yourself, your spouse, child, or another heir). With the CRT set up, you transfer your appreciated assets into the trust, and the trustee sells them.

Typically, you’d owe capital gains taxes on the sale. But with a CRT, you owe no capital gains when the assets are sold, and you qualify for a tax deduction for the proceeds funded to the trust.

With the appreciated assets sold, the trustee re-invests the proceeds to generate income. As long as it remains in the trust, that income isn’t subject to taxes.

From there, the non-charitable beneficiary receives annual income from the trust, which is subject to income taxes upon distribution. Whatever assets “remain” at the end of the donor’s lifetime (or a fixed period up to 20 years), pass to the named charity(ties) without being subject to estate taxes.

If you’re considering selling highly appreciated assets and want to decrease your tax exposure, contact a Personal Family Lawyer® to learn more.