Charitable Remainder Trust Explained
Charitable Remainder Trust (CRT) – What You Should Know!
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What is a charitable remainder trust (CRT)?
A charitable remainder trust (CRT) is an irrevocable trust, meaning it cannot be modified or terminated without the beneficiary’s permission.
A CRT is a tax-exempt trust designed to assist you in reducing the taxable income of the individual. It is designed to disperse income to the beneficiaries for a specific amount of time (no more than 20 years) and then donating the remainder of the Trust to the designated charity (IRS-approved).
This type of Trust is a “split-interest” giving vehicle. It allows the trustor to make contributions while being eligible for a partial tax deduction and donate the remaining assets.
Now, the CRT can be considered to be the following: “charitable giving while generating income.” So you can effectively “secure a lifetime of income, save taxes, and benefit a charity.”
Why should I allow a trust to manage my assets an appreciated property?
Well, there are countless examples of how a CRT works effectively, especially from a tax perspective. We would say to NOT sell any highly appreciated assets before reviewing the power of a CRT!
Our probate attorneys are well versed to help mitigate loss, ensuring a cost effective and smooth process.
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What types of charitable remainder trusts are available?
- Charitable remainder unitrusts or CRUTs
- The CRATs distribute a fixed percentage based on the balance of the trust assets (revalued annually) and can contribute other additional assets.
- Charitable remainder annuity Trusts or CRATs
- The CRATs distribute a fixed annuity amount per each year, and additional contributions are not allowed.
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To discuss your situation, to meet with us or to get your questions answered, please call our office to schedule an appointment: 949-706-7300.
Concerning CRTs, what are the Pros and Cons?
Tax-exempt: You can reduce your taxes with a charitable income tax deduction. For example, consider the following:
- Fund the CRT with cash: Donor can use a charitable deduction of up to 60% of the Adjusted Gross Income (AGI)
- Appreciated real estate assets: Up to 30% of their AGI for the tax year
- Can’t use the total deduction for the year? Can carry the deduction for up to 5 additional years.
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What assets can be donated to a CRT?
- Public traded securities
- Certain types of stock (CTSs cannot hold S-Corp stock)
- Real estate
- Other assets
What mistakes to avoid in a CRT?
When it comes to drafting a CRT, there are specific technical requirements that go into the Trust. So in essence, the CRT requires that the payment to the non-charity be stated as a fixed annual amount (CRAT) or a fixed percentage of the trust value as determined annually (a CRUT)
Before deciding on a CRT, you need to consider the impact it will have on your future as CRTs are irrevocable with many tax implications.
Hess-Verdon & Associates will work with you to create a financial plan to help you navigate the tax rules and implications.
Contact us today at 949-706-7300.
To discuss your situation, to meet with us or to get your questions answered.