Charitable Remainder Trust

Lowering Your Estate Tax While Improving the World

One great way to make the world a better place and lower your estate tax at the same time is to establish a charitable remainder trust. Created by Congress in 1969, these a CRT, as it is commonly known, allows you to make an irrevocable gift of appreciated securities, cash, or other assets to a trust; the beneficiary of which is a recognized non-profit. For the remainder of your life, you (or a party you designate) will receive the investment income from the assets held within the trust. Upon your death, the principal value of the assets becomes the property of the charity which you named.

The benefits of establishing a charitable remainder trust are threefold:

1. No tax on appreciated property or securities: Because the gift is irrevocable once placed in the trust and the money is eventually destined for charity, you won’t pay any capital gains tax. If you owned 100,000 shares of Company XYZ with a $10 cost basis the stock is currently trading at $500 per share, the $49 million profit would go entirely to the charitable remainder trust if you placed the shares into the trust before selling them. This provides more assets generating investment income for you during your lifetime, and more financial resources for the charity upon your death.

2. Flexibility to change charity designation: Although you can never cancel the charitable remainder trust, you are free to change the charity designated as your beneficiary. In other words, if you originally wanted the American Cancer Society to receive 100 percent of the trust principal upon your death, you could easily go back later and lower than figure to 50 percent while instructing the remaining half be left to Christian Children Fund.

3. Trust assets excluded from calculation of estate tax: The value of assets held in a charitable remainder trust is excluded from the calculation estate taxes, reducing your effective estate tax rate or possibly eliminating the liability altogether.