A Charitable Remainder Trust (CRT) is a trust that makes yearly payments to the donor for life and then whatever remains goes to charity. It is a great way to increase your retirement income, while decreasing your taxes.
For example, let’s say you bought stock 25 years ago for $50,000. Today it is worth $500,000 and it’s paying a 1% dividend. You would like more income, but you don’t want to pay capital gains tax on $450,000. So you call Amazing Discoveries and tell them about your problem.
Amazing Discoveries advises you to transfer the stock to a CRT which has a 7% payout. This increased your income from $5,000 to $35,000 per year, and it helped save you from capital gains tax, income tax, and estate tax.
To establish a Charitable Remainder Trust a trust document must be created. Next, the donor contributes assets to the trust, which are then invested. The donor receives annual payments from the trust. This can be a fixed dollar amount each year or a percentage of the trust value. Any money or assets left in the trust at termination would go to Amazing Discoveries.
Like a charitable gift annuity, a CRT can make payments annually, semi-annually, quarterly or monthly. The duration of the trust can last for the remaining life of one or two beneficiaries. It can also be for a term of years, e.g. twenty years. The payments are usually taxed as ordinary income and/or capital gains.
CRTs are different than annuities in that the donor can pick the payout rate, however some IRS limitations apply. The higher the payout rate selected, the lower the charitable deduction will be. Additionally, the payments are not guaranteed, but only last as long as there are assets in the trust.
The benefits of a CRT are:
Increases annual income for the beneficiary
Income Tax deduction
Estate Tax savings
Capital Gains tax savings
Supporting the charity of your choice
A Charitable Remainder Trust is typically for people who have money or property valued over $100,000. If you would like to learn more about a “Charitable Remainder Trust” please click here to contact us now.