The government encourages people to make gifts to recognized charitable groups or organizations. This is a win-win situation because the recipient benefits from the charitable donation and the donor benefits from the satisfaction of helping those in need. In addition to helping others, those who make a gift of appreciated property, real or personal, may also gain a financial advantage by benefitting a charity. A Charitable Remainder Trust (CRT) is provides a way to make a gift of appreciated property and avoid paying any capital gains taxes on the gift, in addition to receiving a tax write-off.
A CRT allows you to take appreciated property and convert it into an income stream for the rest of your lifetime. Converting property in this manner means that you avoid paying taxes on the appreciation. Further, the property is removed from your estate, entitling you to an immediate tax write-off equal to the present value of the gift.
A CRT is generally set up to provide an income stream that ends upon the trustor’s death. There are two basic ways to structure the income stream: (1) as a percentage of the value of the asset in the trust, or (2) as a fixed cash amount. Upon the trustor’s death, the remainder of the trust is distributed for the benefit of the charity. There are, of course, different considerations to be made for each option, and it’s important to remember that a CRT is irrevocable once established and funded, meaning you cannot change your mind later.
I’ve given a very brief overview of the function of this type of trust. If you have an appreciated asset and a desire to benefit a charity, make an appointment to speak to one of the attorneys at Morris Hall to discuss the options.
Contributed by MH Phoenix Estate Planning Attorney, Andrea Claus.
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This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.