Charitable Remainder Trusts or CRTs

The Charitable Remainder Trust or CRT is one potential income tax planning strategy for clients to use in eliminating their capital gain taxes and depreciation recapture taxes upon the sale of property. In fact, many of my clients that have used the CRT have done so for financial reasons and not for charity. The charitable cause is merely the icing on the cake.

Real Estate or Personal Property
The property is generally real estate but could be any type of highly appreciated property – real or personal. The important point here is that the asset is a highly appreciated asset that has a significant capital gain to worry about.

CRTs Are Not For Everyone
It is a very complex strategy, so the following is merely a very simple overview to help taxpayers understand the benefits of the CRT. The CRT is not for everyone, so a suitability analysis is critical before proceeding.

CRTs Simplified
The CRT is a “charitable” trust established by the taxpayer. The taxpayer names one or more charities as the beneficiaries. The taxpayer contributes the highly appreciated asset into the CRT. The CRT then sells the asset. The capital gain and depreciation recapture taxes are not triggered upon sale because it is a charitable trust. The net cash proceeds are then reinvested in stocks, bonds, and mutual funds inside the CRT. The taxpayer can receive a certain amount of predetermined income from the CRT during their lifetime (many options here). The charity receives the balance of the trust when the taxpayer passes on.

Summary
The positives: eliminate taxes upon sale of property, receive immediate tax deduction for future charitable gift, receive cash flow during lifetime, and fund charity at death.
The negatives: complex strategy, loss of control over assets, can not be undone, heirs lose assets unless replaced with a life insurance trust.

Please remember that this is an oversimplified explanation. I would be happy to refer you to a CRT expert that can work with you to determine if the CRT is suitable for your needs.