Charitable Remainder Trust (CRT)

Charitable Remainder Trusts (CRT's) are effective for selling appreciated assets without capital gains taxes, for creating retirement income and income tax deductions for the grantor, and for benefiting a charitable cause. A CRT is an irrevocable trust established for the lifetime income benefit of the grantor, with the remainder of the trust corpus passing to a charitable beneficiary upon the death of the grantor. Typically, the grantor will contribute appreciated property to the CRT, which will in turn be sold by the trustee of the CRT without capital gains taxes. After the sale, the trustee of the CRT will then invest the after-sales proceeds in a manner that will generate an income sufficient to pay the grantor a regular unitrust payment equal to a pre-established percentage of the value of the trust assets per year, (called the payout rate, or the unitrust percentage). The unitrust payment must be at least 5%, but depending upon the age of the grantor, can be substantially higher, often around 6% to 8% or even higher. Income payments can last throughout the lifetime of the grantor, and can even be extended for up to an additional 21 years to another income beneficiary selected by the grantor.

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In addition to the lifetime income, the grantor also receives a charitable income tax deduction equal to the present value of the remainder interest of the gift. There are specific rules and parameters for calculating and claiming the income tax deductions. The value of the tax deduction is calculated as a function of the grantor's age, the value of the property, the payout rate of the unitrust, and the applicable federal rate of interest. Even though the charity will not receive any of the trust assets until after the death of the grantor, the grantor will receive an income tax deduction at the time of the contribution. The value of the income tax deduction, which is equal to the present value of the remainder interest, is therefore somewhat less than for standard charitable contributions to regular charities where the charity has the immediate use of the money. The grantor can choose the charitable beneficiary, however, and can even retain the right to change the beneficiary during his or her lifetime.

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