crt estate planning

2021-09-12

What Is a CRT and When Would I Use It?

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Are you curious about a charitable remainder trust (CRT) distribution or how it relates to estate planning? Learning more about estate planning vehicles like irrevocable trusts and charitable remainder trusts will help you select the right ones for your situation. 

We’ll cover those topics here and share the highlights of CRT estate planning with you today. This is not an area where you want to rely on a DIY plan. When you’re ready to move forward, talk to an expert to make sure your selections will best fit your estate planning goals. 

Charitable Remainder Trusts and Estate Planning 

The simplest way to explain a charitable remainder trust is to describe it as an irrevocable trust with both current and future beneficiaries. It’s a “split-interest” estate planning vehicle broken up into two components. One part is “life interest,” which is distributed during the lifetime of the donor. The other part is the “remainder” interest, which is donated to a charity of the donor’s choosing. 

Highlights of CRTs: 

    1. They can be used to generate income in retirement.
    2. CRTs offer the ability to safeguard assets that have appreciated significantly.
    3. They can be used to lessen your taxable income.
    4. CRTs can also help you avoid capital gains taxes.

 

Charitable Remainder Trust Distribution

To explore the way CRTs are distributed, let’s use Gail and Todd as an example. This couple has an estate planning goal of reducing or eliminating their tax bills for their highly appreciated assets. These assets are real estate properties worth $3 million and stock holdings worth $2 million. 

Gail wants to donate money to STEM programs when the remainder is distributed to charity. When Gail and Todd talked to their estate planning attorney, they discussed how a CRT would work in their situation. Ultimately, the couple decided to fund a charitable remainder trust with some of their properties and stocks. 

They liked the fact that the trust itself is legally treated as a charitable entity. This means the trust pays no income taxes or capital gains taxes. After funding the trust, the couple enjoyed a quarterly bump in their income from the charitable remainder trust distributions. Overall, establishing the CRT allowed them a lot more flexibility in their lifestyle choices throughout retirement. 

Another great benefit from the charitable remainder trust is that it allowed Gail and Todd’s estate as well as the charity to avoid capital gains tax. Because of this, there were more funds available for the charity, and their assets were stretched farther! 

Is a CRT right for my estate plan? 

So, how do you know if a CRT is right for your estate plan? There are two easy boxes to check to see if it’s the right fit. 

  • Are you looking for a way to turn your highly appreciated assets into a stream of income during your retirement years? 
  • Do you also want to leave a big percentage behind to a charity that’s close to your heart? 

If you were able to check both of those boxes, your estate plan could definitely benefit from a CRT. Highly appreciated assets are best handled with the help of a tax expert, like the ones here at Phelps LaClair. 

Help with CRTs and Estate Planning in Arizona

Phelps LaClair is a trusted estate planning firm, experienced in implementing advanced gifting and trust strategies. Our plans are designed to reduce or eliminate death taxes. However, you must start the planning process early to implement many of these tools. 

If you have questions about how to minimize your estate tax exposure or about charitable remainder trust distribution, we can help. Please call us at 480-892-2488 to schedule a consultation or visit our education center for more information.

 

 

 

 

 

photo by Steve Buissinne from Pixabay.com on 9/12/2021 | used under the creative commons license | changes made; text added to say, “Charitable Remainder Trusts”

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