Charitable Trusts

Charitable Remainder Trusts, or CRTs, are irrevocable trusts which set up two sets of beneficiaries: income beneficiaries and remainder beneficiaries. The income beneficiaries are typically the person who creates the trust and his or her family. The remainder beneficiaries are one or more charities.

The income beneficiaries receive income derived from the assets in trust for their lifetimes. When they have all passed away, the assets that remain in the trust are donated to the specified charities.

A primary benefit of this strategy, apart from the desire to promote charitable purposes, is that it avoids estate taxes completely. All of your hard-earned assets benefit the causes you believe in.

Another benefit is that Charitable Remainder Trust assets are not subject to capital gains tax. That means that you can trade stocks, sell appreciated real estate, or any other appreciated asset, and take 100% of the proceeds for the trust. Further, appreciated assets that are donated to the trust are immune from capital gains tax as well. So you may take an asset that has grown greatly in value, donate it to the trust, and insulate yourself from ever paying capital gains taxes on the proceeds. Further, you can take an up-front tax deduction which is derived from the full appreciated value of the asset, despite having avoided the capital gains taxes. As you can see, these advantages are substantial.

The downside, of course, is that your heirs will not receive the principal (or corpus) of the trust when you pass away. Thus this is a good plan for people without heirs, or whose heirs are already well provided for. Alternatively, you may designate your heirs as beneficiaries so that they may derive income from the trust until they pass away as well.

As always, be sure to consult a qualified attorney and tax advisor before choosing a form of charitable trust to use.

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