A charitable remainder trust (CRT) is a powerful estate planning tool that allows individuals to support their chosen charities, like universities or hospitals, while potentially receiving income tax benefits and avoiding capital gains taxes on appreciated assets. Essentially, you transfer assets to the trust, receive an income stream for a specified period or for life, and the remaining assets go to the designated charity upon your death or the end of the income term. CRTs are particularly attractive for those with highly appreciated assets, such as stocks or real estate, as they allow you to donate the assets without immediately triggering a substantial tax bill. According to the National Philanthropic Trust, charitable remainder trusts accounted for $7.53 billion in total contributions in 2022, demonstrating their continued popularity among philanthropically inclined individuals.
What are the different types of charitable remainder trusts?
There are two primary types of CRTs: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs). A CRAT provides a fixed annual income payout, determined at the trust’s creation, regardless of the trust’s investment performance. This offers predictability but doesn’t adjust for inflation or market fluctuations. In contrast, a CRUT pays out a fixed percentage of the trust’s assets, revalued annually, allowing the income stream to potentially grow with the trust’s investments. “Choosing between a CRAT and a CRUT depends on your financial goals and risk tolerance,” explains Steve Bliss, a Living Trust and Estate Planning Attorney in Escondido. “CRATs are better for those seeking a stable income, while CRUTs can offer greater potential for growth.” Approximately 60% of charitable remainder trusts established are CRUTs, due to their flexibility.
What are the tax benefits of using a CRT?
Establishing a CRT offers several significant tax advantages. First, you receive an immediate income tax deduction for the present value of the remainder interest that will eventually go to the charity. The deduction is limited to 50% of your adjusted gross income in any given year, but any excess can be carried forward for up to five years. Secondly, if you donate appreciated assets, you avoid paying capital gains taxes on the appreciation when the assets are transferred to the trust. This can result in substantial tax savings, especially for assets held for a long time. Moreover, the income you receive from the CRT may be partially tax-exempt if it represents a return of principal. “Many of our clients are surprised by the significant tax savings they achieve through CRTs,” Steve Bliss notes. “It’s a way to give back to their favorite causes while minimizing their tax burden.”
I had a client who thought they could simply name the hospital as a beneficiary, what went wrong?
Old Man Tiber, a long-time resident of Escondido, was a generous man. He’d amassed a considerable portfolio of stocks over decades and wanted to leave a substantial gift to St. Jude’s Hospital. He figured he could just name the hospital as a beneficiary in his will and be done with it. Unfortunately, Tiber hadn’t considered the estate tax implications. When he passed away, his estate was subject to federal estate taxes, which significantly reduced the amount ultimately received by St. Jude’s. Had he established a CRT during his lifetime, he could have avoided those taxes and maximized the gift to the hospital. He also missed out on an income tax deduction during his lifetime, essentially paying taxes twice—once on the gains and again on the estate tax. It was a simple oversight with costly consequences, illustrating the importance of proactive estate planning.
How did a CRT help the Henderson family achieve their philanthropic goals?
The Henderson family had a vacation home in Carmel that had appreciated significantly over the years. They wanted to support UC San Diego’s cancer research program, but they were concerned about capital gains taxes and reducing their income. Steve Bliss recommended establishing a charitable remainder unitrust. They transferred the property to the trust, receiving a substantial income tax deduction and avoiding capital gains taxes. The CRUT paid them a fixed percentage of the property’s annual appraisal value, providing them with a reliable income stream during their retirement. Upon their passing, the remaining value of the trust went to UC San Diego, fulfilling their philanthropic wishes. The Hendersons not only supported a worthy cause but also optimized their estate plan, ensuring that their legacy would continue for generations. “The Hendersons’ story is a perfect example of how a CRT can be a win-win for both the donor and the charity,” Steve Bliss concludes.
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
estate planning
living trust
revocable living trust
family trust
wills
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Map To Steve Bliss Law in Temecula:
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “How do retirement accounts fit into an estate plan?” Or “What is ancillary probate and when does it happen?” or “How does a trust work for blended families? and even: “What are the different types of bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.