and a Favorite Charity
Watching the value of a significant investment grow is wonderful — until you’re ready to take your profits, that is. Then, the pain of high tax rates may leave you wishing for some relief.
In the right situation, a planning tool called a charitable remainder trust (CRT) can deliver that relief. A CRT pays you (or another noncharitable beneficiary) a specified annual amount for life or for a term of up to 20 years. Afterward, the charitable organization named in the trust document receives what’s left in the trust (called the “remainder”).
Funding the trust with highly appreciated assets — stock, real estate, etc. — lets you avoid the current tax liability you’d incur if you sold the property. Because a qualified CRT is exempt from income tax, your trustee may sell the assets and reinvest the full sale proceeds to fund your trust payments.
You don’t have to wait until the charity receives the trust remainder to claim a tax deduction for your contribution. It’s available in the year you create the trust and is based on the present value of the charity’s interest in the trust. If the tax law’s ceiling on the charitable deduction prevents you from claiming the full deduction, you may carry over the amount you weren’t able to deduct for up to five tax years, subject to that year’s charitable deduction ceiling.
There are two types of charitable remainder trusts: the charitable remainder annuity trust (CRAT) and the charitable remainder unitrust (CRUT). Each has different payment requirements that you will want to learn about if you decide to explore the charitable remainder trust strategy in more depth. Interested? Talk to us.