Achieving Your Philanthropic and Financial Goals Through CRTs

Understanding the Benefits of CRTs

There are two primary types of CRTs: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs). Both involve transferring assets, such as cash or securities, into a trust. The trust then distributes income to designated beneficiaries, often you or your spouse, for a set period or for life. Importantly, the remaining trust assets eventually pass to a designated charity.

Financial Advantages of CRTs

CRTs offer several financial benefits:

• Potential for a Significant Tax Deduction: When you initially fund the CRT, you may be eligible for a substantial tax deduction based on the transferred assets’ value, beneficiary ages, and current interest rates.
• Tax-Favored Growth: Assets held within the CRT typically grow tax-deferred. This allows for greater accumulation and ultimately a larger charitable contribution.
• Strategic Use of the Tax Cuts and Jobs Act: Consider establishing a CRT in a year where you expect to itemize deductions to maximize the tax benefits. Additionally, if you contribute appreciated assets, there are strategies to optimize the use of the deduction limitations.

CRAT vs. CRUT: Choosing the Right Trust

• CRAT (Charitable Remainder Annuity Trust): This type of CRT distributes a fixed annual payout, typically between 5% and 50% of the initial trust value. This offers predictable income but doesn’t adjust for inflation.
• CRUT (Charitable Remainder Unitrust): This trust distributes a fixed percentage, recalculated annually, of the trust’s current value. This allows income to potentially keep pace with inflation but can fluctuate with the trust’s performance.

Your Role in Establishing a CRT

When creating a CRT, you designate a trustee to manage the trust’s assets. This can be a professional with trust management expertise, a trusted family member, or a combination of both. It’s crucial to choose a trustee who aligns with your values and possesses the necessary financial knowledge. Remember, you retain some control even after establishing the CRT. You can often designate successor beneficiaries, choose the charitable recipient of the remaining trust assets, and potentially even replace the trustee if necessary.

A New Opportunity for Funding Your CRT

A recent development allows for funding a CRT using a Qualified Charitable Distribution (QCD) from your IRA. Individuals over 70 ½ can generally donate up to $105,000 annually from their IRAs to qualified charities. Now, there’s an option to contribute a split-interest gift of up to $53,000 directly to a CRT. However, this strategy has limitations and may not be suitable for everyone. Consult with your financial advisor to determine if a split-interest gift to a CRT aligns with your financial goals.

The Importance of Professional Guidance

CRTs are irrevocable trusts, meaning their terms cannot be changed once established. Therefore, it’s essential to discuss your specific situation and goals with a qualified estate planning professional. They can help you determine if a CRT is the right option for you and guide you through the setup process to ensure it aligns with your overall estate plan.