Charitable Remainder Trusts
- Author Ishan Goradiya
- Published August 19, 2011
- Word count 602
In planning for your retirement, you may face several financial issues. Maybe you’d like to generate retirement income, but don’t want to pay capital gains tax on investments you’ve held for several years. Perhaps you’d like to minimize your income taxes during retirement. You also might like to reduce the size of your taxable estate so more of your money goes to your heirs. Finally, you may with to create a legacy or support a cause, church or charity that is close to your heart.
A Charitable Remainder Trust may help you realize all these objectives.
How does a CRT work?
A CRT is a tax-exempt irrevocable trust. You can transfer cash and highly appreciated assets to the trust, and in return, you may arrange to receive income for life or a specified stretch of time (not to exceed 20 years). Income may potentially be paid out of the CRT not only during your lifetime, but also over the lifetimes of your heirs. Eventually, a percentage of the assets in the CRT go to charities or non-profits of your choice.1
In brief, the CRT gives you a chance to
• gain a current income tax deduction
• avoid estate taxes on the gifted assets
• create an income stream
• achieve tax-free compounding of assets (until withdrawn from the CRT)
• sell assets with a low cost basis without incurring capital gains taxes2
The transfer of assets to a CRT qualifies as a charitable contribution, thereby allowing you to take an income tax deduction based upon the estimated present value of the remainder interest that will eventually go to charity.1
As a CRT is an irrevocable trust, assets transferred into it are no longer included in your taxable estate – though you do retain an interest in the gift or transfer.3
A CRT does have some disadvantages.
The word to keep in mind here is "irrevocable." When you set up a CRT, you are signaling to the Internal Revenue Service that those assets will have one of two destinies. Either they will go to your heirs and charity when you die, or you will withdraw them before you die and pay the resulting taxes on the withdrawal. In the meantime, you need to make sure that you have enough money outside the trust to provide for any needs you may have.
A second disadvantage in using a CRT is that the income tax deduction for charitable giving does have limits. These limits may prevent the entire amount from being used to lower your income tax.
What about your heirs?
On the surface, a CRT would seem to present a family with one huge disadvantage. After all, it tells the IRS that you plan to leave a bunch of your money to charity – and that money is also removed from your estate.
So the question naturally comes up: "If I do this, am I going to disinherit my kids?"
There’s a way around that.
A good CRT strategy actually involves two trusts. Besides the CRT, you can set up a parallel wealth replacement trust funded with life insurance.
Through this irrevocable life insurance trust, your heirs may receive a proper inheritance. The wealth replacement trust is ideally administered so that its death benefit is at least equal to the value of the gifted assets. So when you pass away, the CRT transfers its assets to charities and your heirs receive tax-free life insurance proceeds.3,4
To use life insurance, however, you’ll need to be insurable. Furthermore, you’ll want to make sure the benefits of the CRT outweigh the costs of the life insurance premiums.
Ishan Goradiya is freelance writer and loves to write about financial planning. These days he is writing on Netbenefits.
Article source: https://articlebiz.comRate article
Article comments
There are no posted comments.
Related articles
- SCOFI: Pioneering Venezuela’s Petroleum Industry for Over 65 Years
- To Understand Risk, Start By Asking What You Don’t Know
- How To Make Money On Binance: A Full Guide
- Airbnb Investment 101: Tips for New Hosts in Australia
- Indian Gold Demand Rebounds During Important May Festival
- The Investment Terrain in Crypto, Blockchain, and Web3
- Exploring Bitcoin: Corporate Giants Embrace the Cryptoverse
- The Significance of Static IP Address for Trading
- TYPES OF FOREX REGULATIONS
- Weekly Events: Avalanche & Chainlink Collaboration, CommEx Closure, And More
- Assani Elolo Ronaldo - How Bank Instruments Facilitate Gold Deals
- Crypto News: Mempool Solana Shuts Down, Police Integrate Cardano Into Their Work, WhiteBIT And FC Barcelona Launch New Course
- Is Crypto Entering 2021 Vibes?
- Bitcoin Updates All-Time High In Momentum Amid Its Scarcity
- Analyst Announces Bull Run Start, Cites Stock-to-Flow Strategy
- Weekly Crypto News: Telegram Pays Toncoins, WhiteBIT Is Now TradingView Broker And More
- undetectable banknotes
- Unlocking Financial Success: Why Successful Portfolios LLC is Your Best Advisor
- Are EVs a Threat to the Republic?
- A Deep Look Into Binance: Can It Really Be Trusted?
- Ledger Live - Most Trusted & Secure Wallet - Ledger
- Decoding the Future: Navigating the Crypto Landscape
- Don't Cry for Me General Motors
- Investing in exponential growth stocks: what can you choose
- Leveraging ChatGPT AI for Smarter Stock Market Analysis and Investments
- Shib, Doge, and Pepe Have a New Competitor: The Rise of $FUFU Token
- Unlocking Wealth: The Power of Apartment Syndication in Real Estate Investing
- 6 Reasons to Invest in Bitcoin
- Blockchain and AI Convergence: A New Era of Innovation
- Financial Planning for Small Business Owners: Tips for Success