March 2011: Planned Giving Tip of the Month

How to Save Taxes Using A Charitable Remainder Trust

By, Patricia A. Rowe, Esq. CPA

Charitable Remainder Trusts (“CRT”) are often used to eliminate immediate capital gains taxes on the sale of appreciated assets, such as, stocks, bonds real estate (with no debt) or other assets. Once you establish the CRT, you can transfer appreciated assets to the trust with no income tax consequences. If the CRT sells the asset it does not pay tax on the capital gains.

You get an income tax deduction in the year that you contribute the property to the CRT equal to the fair market value of the gift determined under the Treasury Regulations. Being a “charitable remainder” trust means the income beneficiaries, such as your children or spouse, receive the current income each year generated by the assets in the CRT. After the end of a life or after a term of up to 20 years, the charity receives the remainder of the assets in the CRT.

CRT reduces your estate taxes by removing the assets from your estate. It allows you to take an appreciated asset such as land, that is generating small income each year, sell it, pay no tax on sale and reinvest the funds in a more productive asset that generates a current income stream for family members. In this manner a donation to a CRT reduces current income taxes with a sizable income tax deduction, creates a significant charitable gift and increases your family’s spendable income throughout the rest of your life.

Annuity Trusts

With a Charitable Remainder Annuity Trust (“CRAT”) the trust pays a fixed percentage of the initial value of trust assets, 5 % minimum per year regardless of investment performance. Income distribution is mandatory and principal may be invaded to satisfy the required payout. This is used for someone who wants a guaranteed income stream each year.

Unitrusts

With a Charitable Remainder Unit Trust (“CRUT”) the trust pays a fixed percentage of the annual value of trust assets, 5 % minimum per year recomputed each year. The higher the investment performance the higher the income each year. The income distribution is usually higher than in a CRAT but the income tax deduction is lower. This is used for someone who wants a specific percentage each year that keeps up with inflation.

How To Get Started

As with many concepts created by the Internal Revenue Code, CRT’s are somewhat complicated and require some hoop jumping! Feel free to contact the Law Offices of Patricia Rowe if you would like to obtain more information about CRT’s.

By, Patricia A. Rowe, Esq. CPA

39 Quail Ct., # 106

Walnut Creek, CA  94596

(925) 256-1000

Website:  www. PatriciaRowe.com

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