Charitable Remainder Trusts

A Charitable Remainder Trust (CRT) is a very popular estate planning tool because it allows you to benefit your favorite charity and receive a stream of income while not interfering with your other estate planning objectives. The mechanics of a CRT are as follows: after your attorney drafts the CRT instrument creating the trust, you transfer assets (preferably stocks, real estate, or other property that has gained substantially in value since you acquired it) into the CRT. The trust will pay you income for life (and a percentage of the principal if desired) and the remaining trust property will then pass to the charity at your death.

Because the trust is for the ultimate benefit of a charity, you can take a charitable deduction now on the present value of the assets that will pass at your death, and you do not have to pay any capital gains tax. The trust, as a charitable entity, can then sell the appreciated asset withouthaving to pay capital gains tax. This leaves the entire value of the assets in trust to generate a greater income stream for you. With this increased income, along with the additional income tax savings from the charitable deduction, you can purchase a life insurance policy for your heirs that will more than replace the value of the assets that you transferred into the CRT. The result is that you have given away an appreciated asset without having to pay capital gains tax, benefitted your favorite charity, increased your current cashflow, and replaced the value of the asset with life insurance to your heirs.