Historically, charitable giving rises about one-third as fast as the stock market. While the stock market gains of 2010 remain slight (Dow is up 1.13% at the time of this writing), New York residents may still want to consider using the charitable remainder trust (CRT) in their estate planning.
This trust works well for those who:
• hold highly appreciated assets • desire an income stream off of the assets • want to donate to charity; and • achieve tax benefits.
Because the CRT is irrevocable, this planning should be done with an experienced estate planning attorney.
How the CRT Works, in brief
Your assets and/or property are transferred to a CRT whereby your charity administers the trust. The charity serves as trustee, managing or investing your assets.
The charity pays you and/or your beneficiary a portion of the income generated by the trust for a certain number of years, or for the remainder of your life. At your death or the end of the set period, your charity receives the trust’s remaining principal.
CRT Tax Benefits
By establishing a CRT, you avoid capital gains tax on the donated assets, because the charity is exempt from taxes. An income tax deduction may also be declared on the fair market value of the remainder interest in the trust. Additional savings are effected by removing these assets from your estate, reducing subsequent estate taxes.
Two Types of CRTs:
With the charitable remainder unitrust, the percentage rate on the value of the assets determines your and/or beneficiaries’ annual payment. If the trust value changes, the payment to you and/or your beneficiaries changes.
A charitable remainder annuity trust is set up to pay a fixed rate of return based on the initial valuation at the time the property is placed in the trust. The trust’s assets are never re-valued, so if the assets of the trust increase, the income portion does not change.
The remaining principal of the trust reverts to the charity of choice upon death and/or the end of the set term. (The trust life may be based on the life expectancy of the income beneficiary). Because some grantors may object to the loss of principal, they may purchase life insurance to replace the principal assets. An estate planning attorney then uses an Irrevocable Life Insurance Trust in conjunction with the CRT to assure the trust’s value is also distributed to the income beneficiaries.
Online resources to charitable giving:
• The National Center for Family Philanthropy
This website promotes philanthropic values, vision and excellence across generations of donors.
This website rates and grades public charities to help donors make informed decisions.
• The Foundation Center
This website provides news on charitable activities and links to private and public foundation websites.