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Is a Charitable Remainder Trust right for you?

Do you want to have your cake and eat it, too? A charitable remainder trust (CRT) is a planned charitable gift that may diversify your investments, increase your cash flow, reduce your taxes and leave a substantial gift to your favorite charities.

    Kenneth Wingate

 

Do you want to have your cake and eat it, too? A charitable remainder trust (CRT) is a planned charitable gift that may diversify your investments, increase your cash flow, reduce your taxes and leave a substantial gift to your favorite charities.

How does it work? CRTs are irrevocable trusts which provide you, and potentially your spouse, with an income stream for life or a period of up to 20 years. Upon termination of the trust, the remaining trust assets are distributed to the charity (or charities) of your choice. Several of my clients have selected the Community Foundation to manage the trust assets and make annual gifts to designated charities in perpetuity.

A CRT may be the ideal tool for those who are charitably inclined but concerned about having sufficient income for the future. A charitable remainder trust may be right for you if you:

  • Own appreciated land, or investment or business assets.
  • Intend to sell your assets to unlock additional retirement income.
  • Need an estate planning strategy that preserves your estate for your family or heirs.
  • Have strong charitable intent.

While CRT’s offer a great deal of flexibility and retirement planning advantages, they require careful planning to insure proper structure and funding. If you are interested in learning more about CRT’s or setting up a fund at the Community Foundation, contact your professional advisor. Please remember that each individual situation is unique, and results discussed are not a guarantee of future results. While this article may discuss legal issues, it is not legal advice.

Here’s an Example

Bill and Mary Smith, ages 68 and 65, are in the 39.6 and 20 percent federal income tax brackets for ordinary income and long-term capital gains, respectively. They own stock valued at $300,000, which they acquired some years ago for $100,000. If they sell the stock, they will immediately have to pay federal capital gains tax of $40,000.

By transferring the stock to a CRT with a five percent payout, they will receive a variable income for life with about $15,000 paid to them in the first year. The immediate charitable income tax deduction of about $107,000 based on their life expectancies will save them around $42,000 in federal income tax, and there will be no capital gains tax when the stock is transferred to the trust or when it is sold.

When the trust comes to an end upon Mary’s death, Central Carolina Community Foundation will use the remaining assets to create a designated fund. The fund may exist in perpetuity and will be used each year to provide financial support to the charities that Bill and Mary supported annually during their lifetimes, therefore, insuring that their causes will continue to receive their generosity long after they are gone.

About the Author

Ken is the managing shareholder of Sweeny, Wingate & Barrow, P.A. He is a former certified public accountant and is a certified specialist in estate planning and probate law.