When designing an estate plan, individuals may explore placing assets into trusts. Trusts tuck high-value assets or property away into an account for designated future use. One popular type of trust is the charitable remainder trust (CRT).
CRTs offer families a charitable way to protect assets from the taxes that plague large estates. A CRT allows a person to leave a financial legacy to a good cause while avoiding taxes and retaining control.
The basics of a CRT
CRTs provide people a significant and impactful giving option for high-value estates. Some people may overlook the looming threat of estate taxes, which are taxes the federal government takes upon an individual’s death. These taxes can sometimes reduce an entire estate by 55%, compromising inheritances and family property. With a CRT, a donor can transfer ownership of stocks, bonds, or even real estate. Though the charity now owns the asset, the donor maintains full control, including over generated income.
Donors will enjoy quite a few tax breaks with a CRT. Their initial donation will offer a deduction on next year’s taxes, and any income produced by the asset will avoid income tax. The owner may make more up-front money from the sale of the asset but could have lost up to 37% to capital gains taxes. If the charity were to sell the asset out of a CRT, the charity could reinvest those profits, generating more income which the legacy donor can enjoy, tax-free, for their lifetime.
The asset transfers ownership entirely upon the donor’s death, securing a charitable legacy that can provide lasting benefit to an important charity for years to come. Several local community organizations, churches or welfare institutions offer accessible literature on their websites about setting up a charitable remainder trust in their name.
Need an estate plan? Ask an attorney today
Families with high-value estates put everything they have worked for at risk without a comprehensive estate plan. Those with questions can find answers with a local attorney familiar with charitable remainder trusts and estate planning.