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Americans are among the most giving individuals in the world. We out-donate any other country by huge margins, and more than half of most income classes donate to charity. There are many ways to benefit your favorite charities, but donating through a charitable remainder trust can offer many benefits to the donor as well! If charitable giving is of interest to you, read on!
A Charitable Remainder Trust (CRT) is a unique type of trust that allows the creator of the trust, or "donor", to bypass capital gains tax on highly appreciated assets that are contributed to the trust, while offering significant personal benefits (lifetime income and a large charitable income tax deduction) to the donor. And importantly, this arrangement allows you to leave a large gift to the charities you wish to support. And, if your estate is of the size where you are worried about estate taxes, this approach to financial planning can offer your heirs the potential to receive a greater inheritance.
If you answered yes to these questions, a Charitable Remainder Trust may be the solution for you!
How does this work?
1. When you create your CRT, you decide the lifetime income percentage you wish to receive, how the trust will be managed, and the charities you wish to benefit. Before you sell the assets (crucial to avoiding the capital gains tax you would otherwise pay), you irrevocably transfer the assets to your CRT. Fund it with cash, real estate, stocks, bonds, artwork, or almost anything of significant value (generally $200,000 or more). When the assets are transferred, there are no capital gains or other adverse tax consequences.
2. Upon the sale of your real estate or other assets within the CRT, you receive a significant charitable tax deduction on that year’s tax return. If desired, use some of the extra cash you gained to purchase life insurance to replace the value of the assets for your family.
3. You, as the trustee of your trust, invest your assets and manage them (usually with the assistance of an advisor experienced in this area) to create an income stream for one or more lives, or for a term of up to 20 years.
4. Upon the passing of the last beneficiary or the completion of the term, the assets are donated to the charity you designated. If you purchased life insurance with your savings, your family receives the tax-free benefits of the insurance policy you purchased as part of your plan.
Attorney Susan Dallas Hattan has years of experience helping families give and receive these amazing benefits with charitable remainder trusts. If you would like more information about how this works and to see if you would qualify for such a plan, call Susan now at 949-285-4270 for a free consultation!