Charitable Trusts – CRT and Reverse CRT
June 1st, 2009 Filed under: ab trust,Executor Fees,sample wills,Trusts attorney — Estate Planning Author
There are two main types of Charitable Trusts and many advantages to both of them.�The first type is the Charitable Remainder Trust, and second is the the Charitable Lead Trust, or a reverse CRT.
In 1969 the U.S. Government created a new type of trust to help tax-exempt charities and organizations raise money for their causes; and to inspire people to give generously, they offered significant tax incentives to use them.
The charitable trusts are set up to have two beneficiaries, you and the charity of your choice.�In the CRT, the first beneficiary is you, the income beneficiary.�You donate your property to the organization, they manage the property and give you a percentage of the income from the property for the rest of your life, or until an agreed upon end date.�Once you pass away, or the established end date is reached, the full ownership of the properties in the CRT are transferred to the second beneficiary, the charity.
Though charitable trusts are irrevocable agreements, there are ways to maintain control of the donated assets as a trustee, and even reassign the assets to a different beneficiary.�Certain conditions must be met to do this, and the trusts must be structured properly from the beginning.
The Charitable Lead Trust works similarly, only the beneficiaries are reversed.�In this case you would maintain ownership of the property, but disperse income from the property to the charity you have established.�When you pass away, your heirs would receive the residual property as opposed to the charity.�The same tax breaks apply regardless of which charitable trusts you choose.
Charitable trusts are considered to be outside of your estate when calculating income and estate taxes, and they acquire no capital gains tax.�The value of the property can be written off as a tax deduction, minus the amount of income expected to be acquired from the assets during the course of the agreement, and this deduction can be carried forward and spread out over the next five years for maximum benefit.
Charitable trusts can also be used for retirement planning.�By setting up a CRTs or Reverse CRTs during the peak of your career and making regular contributions to the trusts in the form of non-interest bearing asses or annuities, you can take the tax breaks higher than the allowable annual gift giving limits.�If you let the trusts grow during the early years, you can start taking payments after you retire, supplementing any IRA or 401k disbursements, and unlike those other retirement vehicles, charitable trusts have no yearly contribution limits.
There are other types of trusts, like the Legacy Trust, which isolates assets to be distributed as cash to your beneficiaries after your death.�Legacy Trusts are often structured together along with charitable trusts while estate planning, to maximize your tax benefits and to pass on the highest possible percentage of your assets to your family after you pass away.
