The charitable remainder trust (CRT) is a very powerful estate planning tool that may enable you to reduce your liability for income and estate taxes and diversify your assets in a tax-advantaged manner. A CRT is an irrevocable trust that makes annual or more frequent payments to you, for a set period, or until death. Assets remaining in the trust then passes to a qualified charity of your choice. Our charitable -minded clients should remember four tax advantages of using a charitable remainder trust.
- A current income tax charitable contribution deduction for the value of the charity’s interest in the trust . The deduction is permitted when the trust is funded even though the charity does not receiving anything in the year of the taxpayer’s contribution deduction.
- Taxpayer gets regular payments until death. What remains in the trust then passes to a qualified charity of their choice.
- The CRT is a vehicle that can enhance investment return, because the CRT pays no income taxes, the CRT can generally sell an appreciated asset without recognizing any gain. This enables the trustee to reinvest the full amount of the proceeds and thus generate larger payments to you for your life.
- Assets within the trust will be excluded from the taxpayer’s estate. For Oregonians who will be taxed on their estate over $1,000,000, this is particularly important, since state estate tax rates can be as high as 16%.
If a taxpayer wishes to replace some of the value of the contributed property for heirs who might otherwise have received it, they could use some of the cash savings from the charitable income tax deduction to purchase a life insurance policy on their life for the benefit of heirs. In this way, heirs are not deprived of all of the property they had expected to inherit.
If you would like to further discuss the tax advantages of a CRT, please contact us for an appointment.