CHARITABLE REMAINDER TRUSTS

A Charitable Remainder Trust (CRT) can let you sell highly appreciated assets without having to pay any capital gains tax, provide you with a higher lifetime income than you otherwise would have, and help your heirs avoid the federal estate tax after your death.

How Does a Charitable Remainder Trust Work?
The CRT works as follows: you transfer highly appreciated assets into an irrevocable trust, thus removing the assets from your estate. At the time of transfer, you would be allowed to take a charitable deduction, which reduces your income taxes. The trustee of the CRT later sells the assets, but avoids a capital gains tax because the CRT is exempt from capital gains tax. The proceeds from the sale of the assets are reinvested by the trustee to provide a lifetime income for your benefit. The income can also be paid to your spouse during your lifetimes, or to your children during their lifetime, but be aware that income paid to your children will be subject to estate and gift tax restrictions (i.e. income taxed to the extent it exceeds the lifetime or annual exemptions).

At your death, the assets are transferred to the charity that you designate in your trust. You get the benefit of receiving a higher income during your lifetime as a result of investing assets not reduced by a capital gains tax. You also avoid estate taxes since assets are transferred out of your estate.

You may act as the trustee of the trust or you can choose a corporate trustee (i.e. a bank or trust company). The advantage of using a corporate trustee is that they are experienced in investment, accounting and government reporting requirements. Although the trustee retains control of the assets during your lifetime, you can retain the right to replace the trustee as you see fit. The trustee is required to manage the assets according to the terms of the trust, which are determined by you. You can change the charity at any time without suffering adverse tax consequences.

A CRT can also work in conjunction with an irrevocable life insurance trust. You may want to use the income generated from the CRT to purchase a life insurance policy so that your heirs still receive some benefit from the gifted property. You should speak with a qualified estate planning and tax attorney to determine if a CRT would be an appropriate strategy for your estate plan.

Contact our Orange County Estate Planning Law Firm
Call the estate planning attorneys at MORTENSEN & REINHEIMER, PC today at (714) 573-7149, or send an e-mail to info@ocestateplanning.net, and we will contact you to set up a free initial consultation.