Charitable Remainder
Trusts

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Services

CRT Remainder
Calculator

Financial Benefits of a CRT

The tax laws provide two significant incentives for charitable remainder trusts in order to encourage the commitment of assets for future charitable use:

• The actuarial value of the charitable remainder is deductible for income tax, estate tax, and gift tax purposes
• The trust itself is exempt from income taxation. Only the payments to beneficiaries are subject to income tax.

Capital Gains Tax Deferral

Contributions to a charitable remainder trust of securities, or other capital gains property, that have increased in value are especially advantageous. Assets are not subject to capital gains taxation when they are contributed to a CRT nor when they are sold by the trust. Capital gains are passed through to the lifetime beneficiaries only after interest, dividends, and other ordinary income earned by the trust. In many cases the lifetime trust payments will be made entirely from trust income - the contributed capital gains will go the the charitable remainder beneficiaries and completely avoid taxation.
(Note: To preserve the capital gain deferral benefit, contributed assets must not be subject to a pre-arranged sale obligation.)

Tax Deferred Growth

Payments to lifetime beneficiaries of a charitable remainder trust are generally taxable as trust earnings are passed through to them. Earnings beyond the payment requirements of the trust are not subject to income taxation. Assets in the trust can grow on a tax deferred basis to provide greater future value and, in the case of a variable payment trust, correspondingly greater future payments. In this respect, a charitable remainder trust is similar to other tax deferred financial vehicles such as qualified pension plans and deferred annuities.

Increased Income

Low yielding assets that are "locked in" because of capital gains can be sold and reinvested in a more diversified portfolio by a charitable remainder trust. Without the erosion of capital gains taxes the entire investment can be put to work. The trust payments are based on the value of the contributed assets rather than the net amount left after taxation. A charitable remainder trust can be the ideal vehicle to sell highly appreciated, low yielding securities and reinvest the proceeds for greater income.

Income Tax Deduction

An immediate charitable contribution deduction can be taken for a portion of the asset value contributed to a charitable remainder trust. The deductible portion of your contribution is dependent on the rate of payments you select, the ages of the lifetime beneficiaries, and current interest rates reflected in IRS tables. Income tax deductions are allowable within the overall limitations that apply to total charitable contribution deductions.

Income Tax Deferral

Certain kinds of inherited property, including qualified pension plans (IRA, Keogh, 401(k), etc.), are subject to income tax when received by a survivor in addition to possible estate taxes. A charitable remainder trust named as beneficiary of such "income in respect of a decedent" property can receive a lump sum distribution without immediate income tax consequences. Payments are then made to the beneficiaries of the charitable remainder trust, often over a longer period than would have been allowed had they been direct beneficiaries. Income taxes are deferred until the beneficiaries receive payments from the trust, with a larger portion of the assets left to compound on a tax deferred basis.

Estate Tax Deduction

The value of the charitable remainder interest in a charitable remainder trust is deductible for estate tax purposes. Only the lifetime interests of surviving beneficiaries are taxable in the donor's estate - and a surviving spouse's interest is deductible if the spouse is the only surviving beneficiary. Payments to other beneficiaries during the donor's lifetime are considered gifts for gift tax purposes.

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