A win-win proposition: A CRT can benefit you and your favorite charity

A win-win proposition: A CRT can benefit you and your favorite charity

  • Find out what a CRT (charitable remainder trust) can do for you.
  • Learn more about the two types of CRTs–the CRAT and the CRUT.
  • Find out how to fund a CRT.
  • Learn how to choose the best trustee for your CRT.

Are you a multitasker? If so, you may appreciate this estate planning technique. It can convert assets into a stream of lifetime income, provide a current tax deduction and leave the remainder to your favorite charity — all in one fell swoop! It’s the aptly named charitable remainder trust (CRT)–and Fiducial has the scoop for you!

A CRT in action

You can set up one of two CRT types: a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT) and fund it with assets you own. The trust then pays out income to the designated beneficiary or beneficiaries — for example, the trust creator or a spouse — for life or a term of 20 years or less. Alternatively, if certain requirements are met, you can choose to have income paid to your children, other family members, or an entity.

If it suits your needs, you may postpone taking income distributions until a later date. In the meantime, the assets in the CRT (ideally) continue to appreciate in value.

Typically, income-producing assets, such as real estate, securities, and even stock in your own company fund a CRT. (Note: S corporation stock can’t be used for this purpose.) You may supplement these assets with cash deposits or make the transfer completely in cash.

When you transfer assets to the CRT, you qualify for a current tax deduction based on several factors. These factors include the value of the assets at the time of transfer, the ages of the income beneficiaries, and the Section 7520 rate. Generally, the greater the payout, the lower the deduction.

A CRT can benefit you and your favorite charitty.

A matter of control

An important decision relating to a CRT is naming the trustee to manage its affairs. The trustee should be someone with the requisite financial acumen and knowledge of your personal situation. Thus, it could be an advisor, an institutional entity, a family member, a close friend, or even you.

Because of the significant dollars at stake, many trust creators opt for a professional, perhaps someone who specializes in managing trust assets. If you’re leaning toward this option, interview several candidates and consider factors such as experience, investment performance, and level of services provided.

If you decide to take on the task yourself, consider using a third-party professional to handle most of the paperwork and provide other support.

During the CRT’s term, it’s the trustee — not the charity — who calls the shots. The trustee must adhere to the terms of the trust and follow your instructions. Thus, you still maintain some measure of control. In fact, you may retain the right to change the trustee if you become dissatisfied or designate a different charity to receive the remaining assets.

Is a CRT right for you?

The short answer is that it depends on your specific circumstances. Be aware that a CRT is irrevocable. In other words, once it’s executed, there’s no going back and you generally can’t make other changes. So, you must fully commit to this approach. Want more information on CRTs? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!

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