Charitable Remainder Trust

As time goes on, leaving a legacy to a favorite nonprofit – perhaps a health-focused or arts organization, an alma mater, or religious group – may become an integral part of your estate planning.

A charitable remainder trust (CRT) is a special tax-exempt irrevocable trust arrangement written to comply with federal tax laws and regulations under IRS code section 664.

The whole idea behind a charitable remainder trust is to minimize your tax burden. This is accomplished by first donating assets into the trust – particularly appreciated assets – and then having it pay your beneficiary for a designated period of time. The income may be paid over your life, your husband or wife’s life, even your children and grandchildren’s life. These income beneficiaries receive a set percentage of income from the trust.

Once the time frame expires, the remainder of the assets is transferred to the charities you name. They receive the principal of the trust after the income beneficiaries pass away. So you enjoy the best of both worlds: tax reduction PLUS the knowledge that you are benefiting your chosen charitable organization. Let’s examine the multitude of benefits that you receive as the donor:

Avoid any capital gains tax on the assets you donate.

These taxes can range from 10 percent to 20 percent of an asset’s growth in value.

As a result, charitable remainder trusts are perfect for stock or property assets with a low cost basis but highly appreciated value.

Here’s an example: suppose you own a rental property, which you sell for $2 million. You originally paid $200,000 and upon completion of the sale, you would owe capital gains taxes on the $1,800,000 difference – which could easily top $200,000. With a charitable remainder trust, you would not be forced to pay capital gains taxes. That’s quite a savings!

Reduce income and estate taxes.

A charitable remainder trust is considered “outside your estate” the IRS. As a result, you may end up saving as much as 46 cents of every dollar you move into your charitable remainder trust.

In addition, you can receive an income tax deduction for the fair market value of the remainder interest that the trust earned. Average deductions typically fall within the 20 percent to 50 percent range against your adjusted gross income.

Augment your current retirement planning.

By setting up a charitable remainder trust in your peak earning years, you can make contributions in the form of professionally managed variable annuities or other investments. The charitable remainder trust – if left untouched – can then begin making payouts to you upon retirement. Unlike IRAs or 401(k) plans, there are no limits on contributions.

Benefit a favored charity instead of the IRS.

In essence, everyone wins. You receive an income stream along with significant tax deductions. Your heirs can look forward to an attractive cash distribution. And the charity receives the principal of the charitable remainder trust, helping ensure your legacy after you pass on.

There are three types of charitable remainder trusts.

You can choose a charitable remainder annuity trust, which pays a fixed dollar amount on an annual basis. A charitable remainder unitrust pays a fixed percentage of the trust’s value each year. And finally, there is a charitable pooled income fund, set up by the charity and allowing many donors to contribute. Across these charitable income trusts, the minimum payout rate is 5 percent; the maximum is 50 percent.

While the contribution is irrevocable, you do maintain some control over the way the assets are invested and you may switch from one qualified charitable organization to another.

BeamaLife specialists can team up with your estate planning attorney to help you set up your charitable remainder trust. Call a BeamaLife specialist today at (877) 972-3262 to speak or complete short form now.