If you have appreciated assets, transferring them into an irrevocable CRT has both short term and long term benefits. In the short term, you will receive an immediate charitable deduction on your income tax return. In the long term, you will avoid estate tax on the sale of the property when you die as the asset will no longer be considered part of your estate. Once the asset is in the trust, the trustee can sell it for full market value and avoid paying capital gains tax. The proceeds are then immediately reinvested in assets which will produce income to be paid to you on an annual basis until you die (annual payments cannot be less than 5% or more than 50% of the fair market value of the trust’s assets). Upon your death, the remaining trust assets will be donated to the charity or charities of your choice.
You may be wondering why you should not just sell the asset and reinvest it yourself. First, you would not receive a charitable deduction on your income tax return. Second, the sale of the appreciated asset would be subject to capital gains tax, decreasing the amount you have to invest which would, in turn, decrease the annual income to be generated for your benefit.
As you can see, charitable remainder trusts are excellent options for families wishing to reduce their tax liability on appreciated assets while also giving to charity. More information regarding CRTs can be found by following this link.
If you have any other questions or concerns, please do not hesitate to call us at 858-558-9200.