A charitable remainder trust (CRT) is indeed a sophisticated estate planning tool that can be strategically employed to delay income until retirement, offering both tax benefits and the satisfaction of charitable giving. This is particularly appealing for individuals who have appreciated assets, such as stocks or real estate, and are looking to manage their income stream while also supporting a cause they believe in. The basic premise involves transferring assets into the trust, receiving an income stream for a specified period (or for life), and then the remaining assets going to a designated charity. Approximately 70% of high-net-worth individuals express interest in charitable giving as part of their estate plan, showcasing the popularity of vehicles like CRTs.
How Does a CRT Affect My Current Income Tax?
When you transfer appreciated assets to a CRT, you generally avoid immediate capital gains taxes on the appreciation. This is a significant benefit, as capital gains taxes can substantially reduce your investment returns. Instead, you receive an immediate income tax deduction for the present value of the remainder interest that will eventually go to the charity. The amount of this deduction is based on IRS tables, taking into account your age, the payout rate, and the value of the assets transferred. For example, if you are 65 years old and set up a CRT with a 5% payout rate, you might be able to deduct 3.8% of the asset’s value. This deduction can offset other income, reducing your overall tax liability. Furthermore, the income you receive from the trust may be partially tax-free, depending on the type of trust and the character of the assets transferred.
What are the Different Types of Charitable Remainder Trusts?
There are two main types of CRTs: the charitable remainder annuity trust (CRAT) and the charitable remainder unitrust (CRUT). A CRAT provides a fixed annual payment, regardless of the trust’s investment performance. This offers predictability, but the income stream is not adjusted for inflation. Conversely, a CRUT pays out a fixed percentage of the trust’s assets, revalued annually. This allows the income stream to grow with the trust’s investments, potentially providing a hedge against inflation. “A CRUT is typically more flexible, allowing for additions to the trust after the initial funding, whereas a CRAT does not permit additional contributions” states Steve Bliss, an Estate Planning Attorney in Escondido. The choice between the two depends on your individual circumstances and financial goals.
I Heard About a Case Where a CRT Didn’t Work Out So Well – What Went Wrong?
Old Man Tiberius, a retired carpenter with a penchant for antique clocks, had amassed a considerable collection over his lifetime. He had a sudden idea to donate a portion of his clocks to the local historical society, and he thought a CRT was the perfect way to do it, simultaneously delaying income and supporting a good cause. However, he didn’t consult with an attorney. He attempted to create the trust himself using a fill-in-the-blank form he found online, incorrectly calculating the payout rate and failing to meet certain IRS requirements. The IRS rejected the trust, he was assessed significant penalties, and he ended up with a tax bill he couldn’t afford. It was a frustrating experience, and the clocks were eventually sold to cover the debt. This example highlights the crucial importance of seeking professional legal counsel when establishing a CRT.
How Did a Client Successfully Use a CRT to Secure Their Retirement?
The Millers, a couple nearing retirement, owned a substantial amount of stock in a publicly traded company. They were concerned about potential capital gains taxes if they sold the stock to fund their retirement. Steve Bliss advised them to establish a CRUT, transferring the stock into the trust and setting the payout rate to provide a comfortable income stream during their retirement years. By doing so, they avoided immediate capital gains taxes, received an income tax deduction, and ensured a reliable income source for their future. After several years, and as planned, a significant portion of the assets in the CRUT were donated to a local animal shelter, fulfilling their charitable wishes. They were pleased with the outcome—a secure retirement and a meaningful contribution to a cause they cared about. It’s a reminder that with careful planning and expert guidance, a CRT can be a powerful tool for achieving both financial and philanthropic goals.
<\strong>
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
- bankruptcy attorney
- wills
- family trust
- irrevocable trust
- living trust
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/oKQi5hQwZ26gkzpe9
>
Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “How often should I update my estate plan?” Or “How can payable-on-death accounts help avoid probate?” or “What happens if my successor trustee dies or is unable to serve? and even: “What debts can be discharged in bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.