Charitable Remainder Trusts (CRTs) are another of the powerful planning tools available as you consider retirement and estate planning. This one financial transaction offers five favorable tax outcomes:
- Avoiding capital gains taxes
- An income tax deduction
- Tax-free compounding
- Favorable taxes on income payments
- For those with larger estates, elimination of estate taxes
Capital gains: A CRT allows the holder to asset(s) in the trust and avoid paying capital gains taxes. Say you paid $100,000 for property that has since appreciated to $250,000. By disposing of it through the trust, you avoid having to report capital gains income of $150,000.
Tax deduction: This is available to all CRT creators. You will receive a sizeable income tax deduction, based on part of the market value of assets placed in a CRT.
Tax-free compounding: This shields assets within the CRT. Say you place an appreciated piece of real estate in a CRT and sell it, and then invest the proceeds in stocks and bonds. Any appreciation from investments held in the CRT will remain tax-free for the life of the trust.
Favorable tax treatment: In addition to the previously-mentioned benefits, payments from a CRT include tax breaks. If managed correctly, the person or persons receiving income from a CRT may have some taxed at capital gains rates instead of as ordinary income. For those in upper tax brackets, the long-term federal rate of 15 percent will be less than they would otherwise pay.
Estate taxes: CRTs can help eliminate taxes for holders of large estates. The value of assets that are part of a CRT is effectively removed from the donor’s estate, which lowers its tax basis. If a couple had an estate valued at $4,000,000, and they put a $500,000 asset into the trust, the taxable value of their estate could be lowered to $3,500,000 (consult your attorney and estate planning specialist for more specifics).
In addition to these benefits, you may want to consider placing an existing life insurance policy (or taking a new plan) within a CRT. This can enable your loved ones to benefit from the maximum value of their estate. Additional cash flow from this kind of vehicle can permit your heirs to “remain whole” instead of letting the government take a major portion of the proceeds.
A CRT can be a good option if:
- You want to increase your retirement income
- You own appreciated stock or real estate that provides little current income
- You own a business or are a significant shareholder in a variety of businesses
If you fit any of these circumstances, or if you have an asset or assets that have shown major gains and are considering selling it, contact Bradley Burck at 304-526-2658 or e-mail for more information. Let us help you discover whether this special trust arrangement fits your approach.