For individuals who have highly appreciated assets, who want to secure a lifetime income, who want to save taxes and benefit a charity, but who want to leave the total value of their estate to their children and grandchildren, a Tax Advantage Trust, also known as the Charitable Remainder Trust (CRT) is something they should seriously consider.
Charitable Remainder Trusts are specifically allowed by the U.S. tax code and can provide a variety of financial benefits to individuals who want to make charitable gifts. These trusts are often integrated into one’s overall estate plan.
One of the more important benefits of a CRT is the income tax deduction realized upon contributing assets to a CRT. While this is common for all charitable contributions, a charitable gift of a remainder interest in property through a CRT generates an income tax deduction where an outright gift of a remainder interest generally would not. The calculation of the value of the remainder interest is set forth in detailed treasury regulations and accordingly, an estate planning specialist in this area should always be consulted. The importance of this benefit is that you can receive a lifetime income stream in the form of unitrust or annuity payments.
Perhaps the most favorable benefit of the CRT is the ability to sell highly appreciated assets without the imposition of capital gains tax. When an individual has a highly appreciated asset that he/she wants to sell, the effect of capital gains tax on the sale often dictates whether or not the sale is made. If the property is contributed to a CRT before the sale, not only does the client get an income tax deduction, but also when the CRT sells the property, no capital gains tax is imposed. As a result, you can convert a highly appreciated low-income or non-income producing asset into an income stream through the CRT without incurring capital gains tax.
Planning with a CRT allows you to realize an income tax deduction, reduce your taxable estate, and receive an income stream for life. Additionally, a CRT may benefit you in the areas of asset diversification and retirement planning. These financial benefits, as a whole, are generally not available if the gift is made outright to charity.
What Assets Qualify?
Real estate, (improved or unimproved but un-incumbered) which was purchased long ago and closely-held family businesses that were started years ago are both excellent types of assets for this trust. Stocks and stock options held for years, art objects, jewelry, and coin or stamp collections that have dramatically increased in value may also qualify. Virtually any asset that can be converted to cash can be placed in the tax advantage trust.
Who Actually Benefits, And How?
The Grantor funds the trust with one, some or all of his or her assets. The trustee sells the assets at full value with no capital gain taxes and the Grantor enjoys a lifetime of income from the re-invested dollars! The Grantor wins!
Upon the death of the grantor, a qualified charity will receive the remaining assets. The Charity wins!
The income stream generated by the CRT, together with the taxes saved on the tax-deductible gift to the charity, can be used to purchase life insurance to replace the value of the contributed property. If structured properly, then upon the Grantor's death the family receives the insurance proceeds free from income and estate tax. The heirs win!
For more information on CRTs send for our free brochure or call for an appointment.
Law Offices of Daniel B. Capobianco 260 Franklin Street, Suite 1840 Boston MA 02110 Tel: 617-261-5355 Fax: 617-261-6655 offices in Boston, MA and Washington DC E-Mail: dan@dbclawyer.com
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