Charitable trusts are on the rebound

Consider a Charitable Remainder Trust (CRT) when looking to leverage your estate plans

Gene Christian

In 1969, the United States government created section 664 of the internal revenue code to help people with tax issues – people who were also charitably minded in their overall planning. Today, with very few changes over the last 45 years, Charitable Remainder Trusts (CRT) work the same as they were originally designed.

As real estate values in Clark County have rebounded, savvy people with significant potential capital gain tax concerns may consider a CRT as a way to mitigate all upfront capital gain tax while getting a sizeable income tax deduction in the process. If you’re ready to settle in and enjoy a high level of cash flow during your retirement years, a CRT might be for you.

Instead of triggering a capital gain tax by selling real estate, a business, or the family farm, people are increasingly considering how they might partner with a charitable cause before they sell.

Charitable organizations are tax-exempt entities, rather than tax-paying citizens. Therefore, with proper planning, people who use a CRT to help sell part, or all, of an asset with capital gain may enjoy up to five favorable tax outcomes by virtue of using the CRT:

  • Immediate forgiveness of all upfront capital gain tax,
  • A handsome income tax deduction,
  • Tax-free compounding inside the trust (like IRAs and 401Ks),
  • Payments from the CRT potentially taxed to you at a lower rate, and
  • Estate tax elimination for those who have larger estates.

However, for all of these tax benefits to occur there are a couple of catches to note. First, once you create a CRT, you can’t change your mind. It’s an irrevocable agreement. Second, once the CRT’s term of years expire, or more commonly, when you pass away, the CRT will typically discontinue and the remaining proceeds are then distributed to your favorite charitable cause(s).

For 45 years, the federal government has created a way for people with a strong connection to a charitable cause to receive significant “pats on the back” from section 664 of the internal revenue code. Therefore, before you sell that next high-value piece of real estate or business, ask your tax advisor about the benefits of a CRT. Or call your favorite charitable organization and, based on the information you provide, they could prepare some illustrations for you.

For many retirement-aged people, it’s simply a matter of paying taxes when they sell a highly appreciated asset, or giving that same money to a charitable cause instead. Which will you choose?

Gene Christian, MA, is considered one of the Northwest’s foremost authorities on charitable estate planning and complex gift transactions. In 2014, he was awarded the “Lifetime Achievement Award” by the Northwest Planned Giving Roundtable. Christian is working with Clark College Foundation to help individuals and businesses determine how to best leverage their estate plans. He can be reached at gene@cepnw.com. Also, visit clarkgift.org.

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