Since 1969, countless families have used charitable remainder trusts (CRTs) to increase their incomes, save taxes and benefit charities. The Yampa Valley Community Foundation is here to support families in the Yampa Valley who want to use a CRT to do the same locally.
A CRT lets you contribute cash or other non-publicly traded assets such as stock or real estate and become eligible for a partial tax deduction, while also creating an income stream for you or your chosen beneficiaries. It reduces your income taxes now and estate taxes when you die. You pay no capital gains tax when the asset is sold. And it lets you help one or more charities that have special meaning to you.
A CRT works when you transfer an appreciated asset into an irrevocable trust. This removes the asset from your estate, so no estate taxes will be due on it when you die. You also receive an immediate charitable income tax deduction.
The trustee then sells the asset at full market value, paying no capital gains tax, and re-invests the proceeds in income-producing assets. Depending on how you set up the trust, you or your chosen beneficiaries can receive income annually, semi-annually, quarterly or monthly. Per the IRS, the annual annuity must be at least 5 percent but no more than 50 percent of the trust’s assets. At the end of the specified lifetime or term for the income interest, the remaining trust assets are distributed to one or more charitable remainder beneficiaries. That’s why it’s called a charitable remainder trust.
Key benefits of a CRT:
- Preserve the value of highly appreciated assets: For those with significantly long-term appreciated assets, including non-income-producing property, a CRT allows you to contribute that property to the trust and when the trust sells it is exempt from tax. By donating the assets in-kind to the CRT, you’ll preserve the full fair market value of the assets rather than reduce it by large capital gains taxes, allowing more money for the income and charitable beneficiaries.
- Income tax deductions: With a CRT, you have the potential to take a partial income tax charitable deduction when you fund the trust, which is based on a calculation on the remainder distribution to the charitable beneficiary.
- Tax exempt: The CRT’s investment income is exempt from tax. This makes the CRT a good option for asset diversification. You may consider donating low-basis assets to the trust so that when sold, no income tax is generated to you and you eliminate the capital gains tax on the sale of the asset. However, the named income beneficiary will pay income tax on the income stream received.
Is a charitable remainder trust right for me?
The CRT is a good option if you want an immediate charitable deduction, but also have a need for an income stream to yourself or another person. It is also a good option if you want to establish one by a will to provide for heirs, with the remainder going to charities of your choice. If you decide a CRT is the right option for your family, the Yampa Valley Community Foundation can work with you and your financial advisor to establish a legacy fund with the Community Foundation. This fund will be stewarded by the Community Foundation and will create a mechanism to ensure the causes that matter most to you are supported after your lifetime.
We invited you to talk to your financial planner and tax adviser to see if you could benefit from this charitable giving tool.
For over 30 years, the Yampa Valley Community Foundation has been helping donors support their favorite local charities in smarter ways. We can help you explore the different charitable vehicles available and explain how you can complement and maximize your current giving strategy.
Contact YVCF at email@example.com for more information.