Individuals include trusts in their estate plans to provide finances for loved ones, invest in well-loved communities or reduce taxes on high-value assets. At their core, trusts allow people to protect parts of their hard-earned estates from estate taxes.
Of the several types of trusts, many legal professionals recommend using charitable remainder trusts (CRT) for some assets. These trusts allow people to avoid taxes, retain control and donate to charity all at the same time.
How do CRTs work?
CRTs offer people a lucrative and easy way to leave a lasting legacy to their favorite charitable organization. Many community organizations and schools even provide resources to help people set up CRTs in their name. These donations offer a person a place of honor among their charity of choice, which many people value as a profound intrinsic reward. On top of that, donors can enjoy tax benefits as well.
To set up a CRT, individuals first choose the asset(s) they wish to donate, including stocks, bonds, real estate, etc. Establishing a CRT transfers ownership of the asset to the charity of choice, but still retains any income the asset generates for their lifetime. The donor will receive an income tax benefit for the donation but can still use the generated revenue.
CRTs are an excellent option for people with low-income, high-tax assets like empty lots or weak stocks. Selling these assets off may result in a capital gains tax of up to 37%. Placing them in a CRT allows the charity to sell that asset without incurring taxes. The charity can then reinvest the proceeds, the income of which will benefit the donor for their lifetime, state, federal and income tax-free. When the donor passes, the charity retains the donation, securing the donor’s legacy for years.
Bring questions to a lawyer
Those curious about charitable or other trusts can find answers with a local attorney familiar with trusts and estate planning. A lawyer can vet charities, recommend appropriate tax-saving trusts and draw up the paperwork.