Charitable Remainder Trust (CRT)

A Charitable Remainder Trust (CRT), is a way that you can make a significant future gift to D.E.L.T.A. Rescue now while receiving either a fixed income (Charitable Remainder Annuity Trust—CRAT) or a variable income (Charitable Remainder Uni-trust—CRUT) from the value of the assets placed in the trust. These kinds of trusts have a great advantage over simply making an outright gift while you live or in your will. That advantage is the present tax deduction. Not only are you eligible to take a charitable tax deduction for the value of the gift but you avoid paying capital gains tax on the appreciated value of the asset, (for example you own a rental property that you bought for $70,000 in 1980, it’s now worth $150,000. If you were to sell that property today, you pay tax on the increased value of $110,000) .

To create the trust, you would transfer your gift of cash, stocks, bonds, real estate or other assets to the trust. Your trustee can be either a financial institution or a financial advisor of your choice. Your trustee would sell the assets in the trust for their fair market value and invest the proceeds. You and/or other loved ones chosen by you will receive all or part of this income for life, or some fixed term of years. At the end of the term or upon your death, D.E.L.T.A, Rescue would receive the balance of the trust proceeds. A CRT can also be set up to begin at the time of your death.

You can use the tax savings and income to invest as you wish; to fund your retirement plans; to pay for life insurance; or to supplement other sources of income. Depending on the type of trust you choose you will receive either: a fixed return based on the value of the initial investment (CRAT) or a variable return depending on the value of the trust assets calculated at the beginning of each year (CRUT).

Here is an example of how these trusts could work:

Mr. Jones, who is 65 years old, is planning on retiring soon. He loves animals and supports D.E.L.T.A. Rescue and other animal welfare charities. Ten years ago he purchased stocks and bonds for $40,000 that are now worth $150,000. If Mr. Jones were to sell the stock and invest it, he would owe capital gains tax of close to $30,000, reducing the amount he can invest from $150,000 to $120,000. Mr. Jones also has other taxable income of $75,000. Mr. Jones expects a 6% rate of return on his money.

If Mr. Jones creates a CRAT, and transfers the stocks and bonds to that trust, where it is sold at it’s market value, no capital gains will be due. The entire $150,000 can be invested. Mr. Jones will also have an income tax deduction, based on the amount of money to be distributed to charity when the trust terminates, of about $52,000. He can use $26,000 (30%- based on adjusted gross income) the first year and the remainder for up to an additional five years. This could result in a tax savings of $8,000 per year.

Mr. Jones will also receive an additional $10,000 per year for life from the trust. He took a portion of that income and purchased a life insurance policy in the amount equal to the value of the stock to give his heirs upon his death.

Related Estate Planning Options:

For more information please contact us.

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