Eliminate Taxes on Sale of Appreciated Assets such as Stocks, Annuities, Mutual Funds and Real Estate. How,…? The Charitable Remainder Trust!
Using Charitable Remainder Trusts — The last GREAT tax planning tool!
Do you have highly appreciated assets in your portfolio, such as real estate or stock? Are you aware that all depreciation on real estate claimed on your tax return in previous years must be recaptured upon sale or death of the owner at a 25% (yes, no capital gains treatment) flat tax rate? Then, at death, the remaining value is taxed in your estate at high confiscatory tax rates! This is known as the ultimate double tax whammy!
Would you like to increase your income without incurring capital gains tax or painful depreciation recapture and reduce current income tax at the same time?
Would maximizing your estate to your heirs while leaving a substantial charitable gift to a worthy cause or institution be appealing?
A Charitable Remainder Trust can convert your highly appreciated assets into a lifetime income source without generating capital gains or estate taxes. Additionally, one or more charities you select will benefit from your donation. By establishing a Charitable Remainder Trust you will accomplish the following:
|Arrange a source of lifetime income to supplement your retirement.|
|Avoid capital gains, depreciation recapture and estate taxation.|
|Receive the benefits of tax-deferred compounding.|
|Reduce current income taxes via a charitable deduction.|
|Make a significant future charitable gift.|
|Potentially increase inheritance to your family and heirs.|
The Tax Reform Act of 1969 formulated the Charitable Remainder Trust, an irrevocable tax-exempt trust available in annuity or unitrust formats. Properly structured, such trusts let you maintain control of the underlying investments, the amount and timing of income and the organizations that will benefit from your charitable gift. Some limitations may apply.
The beauty of the Charitable Remainder Trust (CRT) starts with the tax free nature of the Trust. Assets left inside the CRT after the death of your all income beneficiaries or whenever the income is planned to stop, become the property of a tax free entity, or charity. Accordingly the IRS allows most all assets, income and gains occuring within the trust to accrue tax free,…with no Federal, State or witholdings of any kind. Therefore, if you contribute assets to a CRT and then have them sold, reinvested, loaned, generating dividends, interest and even more gains,…they occur TAX FREE under the shelter afforded by the charitable entity. Once more, if the CRT is set up correctly, YOU and/or other persons selected by you remain in charge of the assets and all investment decisions related to assets within your CRT.
Once your highly appreciated assets have been sold tax free by the trust, the proceeds can be reinvested and managed by your and/or other money managers of your choice. The gains, dividends and interest all continue to compound annually within the Trust without taxation, similar to an IRA or pension plan. When you and your heirs take income out of the trust it is taxable to the recipient at that time. The rate and the manner in which you and other potential trust income recipients take income from the trust is set at the time of the formation of the trust,…so you really need to become informed as to the income generation characteristics of the two major CRT types,…CRT Annuity Trusts and CRT Unitrusts. Annuity trusts are by definition set to pay out a fixed percent of the original contribution, usually 6% to 12% annually, regardless of what the assets within the trust earn year to year. Under the Unitrust method the same percentage is distributed annually (or monthly, etc.) but it is a percent of the year end trust value so that if your assets continue to increase then your income will increase over time or will decrease if the assets end up decreasing from year to year. With minor or other low tax bracket income recipients now collecting periodic trust distributions, the “income splitting” opportunities are significant and compelling.
When you transfer assets to a Charitable Remainder Trust you are allowed an income tax deduction equal to the present value the IRS calculates and assumes will be left in the trust by the time of the death of your last chosen income beneficiary. The variables in this present value calculation include the life expectancies of your trust beneficiaries, the annual percentage rate and method at which income will be paid out to you and your chosen trust beneficiaries, and the Applicable Federal Rate in effect for the month you make any contributions to the Trust.
Obviously, the shorter the life expectancies or time period for the income and especially the lower the rate of income distribution then the greater the amount that is likely going to be left over when the trust terminates and assets are turned over to the charity, school or foundation. This produces a higher eventual gift and hence an allowable tax deduction in the year assets were put into the CRT.
Similarly, if a high payout, long life expectancies and trust type are calculated to leave little to the charity once the trust stops paying out income to beneficiaries, then little or no tax deduction could result. Under this method, the tax free liquidation of assets, high long term income stream and additional planning and estate considerations become the payoff,…not the tax deductions.
Don’t forget, all the while, when transferring assets into a tax exempt CRT the donor is probably reducing the size of his or her estate and thereby eliminating a second tax, the estate tax. Elderly citizens need also be aware of additional Medicaid eligibility advantages arising from removing assets from their estates.
- Charitable Remainder Trusts are sophisticated and require special legal, accounting and tax administration in order to realize their full potential and endure Alternative Minimum Tax tests. We can assist you in bringing together all the necessary professionals or can work in tandem with additional legal and tax advisors of your own to review your situation and determine if a Charitable Remainder Trust is right for you. The next step is yours,…you may contact us by phone, fax or Email. If you would like to deepen your initial study of this planning technique simply Click Here to obtain our complimentary customized CRT illustration and data sheet. We will get back to you within one week with a complete hypothetical report. This report allows you to begin to review a variety of the benefits of employing a CRT with your specific assets and illustrated to your particulars.