Sophisticated California investors and their local financial advisors in Los Angeles, Orange County, Santa Barbara or Ventura know that the charitable remainder trust (CRT) is one of the most effective and flexible tools in philanthropic financial planning. But this tool is not limited only to sophisticated investors or those who are philanthropically minded.
Many individuals who are retired or planning to retire own low-yield, highly appreciated assets, such as stock or real estate, and don’t want to sell them because of the capital gains tax. A CRT allows you to unlock the income-producing potential from such an asset without paying a substantial amount of capital gains tax.
In most cases, when you create a CRT, you fund it with low-yield, highly appreciated assets. In many instances, you may serve as the trustee and retain power over managing trust property. As the CRT’s trustee, you sell the assets and because the CRT is a tax-exempt entity, no capital gains tax is due on the sale. The trustee then may reinvest the total value of the assets instead of the assets’ after-tax value. When 100% of the property’s value is invested, a wonderful outcome results.
A CRT delivers a stream of income earned on 100% of the asset’s value to you and, in some cases, your beneficiaries for life (or a specified term of years). If the CRT invests in tax-exempt bonds, your and your beneficiaries’ payout can be tax-exempt. When the trust terminates, the remaining trust assets will pass to a charity of your choice. Depending on how the trust is designed, the trust will terminate at your death, the death of your surviving beneficiary, or at the end of a term of years.
From a tax standpoint, a CRT provides you with an immediate income tax deduction for the portion of the assets that will eventually pass to your charity, which increases your spendable income now. This deduction may then be used over a period of years to offset future income.
Also, you save estate taxes in the future because the assets transferred to the CRT will not be subject to estate tax.
Your investment specialist or estate planning attorney will be able to discuss these and other estate planning vehicles in depth and to determine which are best suited to meet your specific financial goals. If you would like to speak with Mitchell A. Port, Esq. about your estate planning, please call for a free consultation at (310) 559-5259.