In this time of giving thanks you may be thinking of ways to share the abundance bestowed upon you or your business. You may feel a need to share your good fortune with a charitable organization or church/ synagogue. One way of accomplishing this would be to structure your estate plan to include a CHARITABLE REMAINDER TRUST; “CRT”. A CRT can structure your estate plan to take maximum advantage of tax laws on charitable giving while gifting to your favorite charity.

A Charitable Remainder Trust is an entity which can provide a stream of income to you, your spouse, your children or others for a specified time period or lifetime while making a generous gift to charity in the future. There are several benefits in executing a CRT. By placing the assets in the trust you can receive an immediate tax deduction, since you are making a charitable gift. Such planning can also allow you to avoid potential estate tax; this will be especially important if Congress allows the Bush tax cuts to sunset and expire. You can also eliminate capital gains tax by funding the trust with highly appreciated assets, as the charitable trust does not incur capital gains when the trust sells the asset at appreciated gain.

The CRT must be an irrevocable Trust. Therefore, you must understand once enacted you will not be able to change the terms of the Trust distributions. The CRT first provides an income stream for the named beneficiaries, you, your spouse, children, grandchildren or others for a set period or life. These beneficiaries receive the income generated by the CRT for the designated time. The CRT may also distribute a portion of the principal, but said portion of principal does not receive the full tax benefits. Upon the expiration of the time period or upon death of the last income beneficiary, the CRT principal is distributed to the named charity. There are many types and forms of CRTs and your financial planner and our office can assist you in establishing the best type of CRT to meet your goals.

Generally you would place an asset which you purchased at a low cost which is now greatly appreciated in a CRT. For example:

Stock basis at purchase ——- $20,000.00
Current Value——————–$100,000.00

Capital Gain on sale————–$80,000.00
Possible capital gain tax———-$16,000.00

This capital gain would be eliminated under a properly drafted CRT, if the stock was gifted to the CRT and the CRT sold the stock. Also the grantor of the gift would receive an immediate charitable deduction based on the formula used for income distribution to non-charitable beneficiaries. The CRT could continue to issue income to named beneficiaries and in the future distribute the remaining principal to your charity.

If you think a Charitable Reminder Trust might make sense for your estate plan, you can consult with Attorney Kolesnikovas to assist in developing a personalized plan.