‘Tis the Season of Giving (and Getting Back)

With the holidays fast approaching, the season of giving is upon us. As we know, we often see significant charitable donations throughout the holiday season. But what if you could give the ultimate charitable gift while retaining some significant benefits for yourself? With a charitable remainder trust, commonly known as a “CRT,” you can.

A CRT is a specific type of irrevocable trust that allows a person (a “donor”) to set aside assets to be given to charity upon the donor’s passing (or upon a pre-determined trust termination date, if you so choose). However, during the donor’s lifetime, a percentage of the value of those assets is paid back to the donor. The percentage can be paid back monthly, quarterly, or annually, creating a separate income stream for the donor. Once the trust terminates due to the passing of the donor or the pre-determined termination date, any assets remaining in the trust will be given to the identified charitable beneficiary. The charity does need to be identified at the outset of the creation of the trust and CRTs can be funded by cash, public securities, real estate, and certain other assets. If funded by a cash gift, the cash can be invested so that it grows for the benefit of the donor and the charity. 

Moreover, creating a CRT provides significant tax benefits. First, being an irrevocable trust, the assets transferred into the CRT are removed from the donor’s taxable estate. Second, the transfer of assets to a CRT qualifies as a charitable tax deduction. Third, if you fund a CRT with assets that have appreciated since you bought them, the appreciated assets can be transferred into the trust and sold by the CRT without incurring capital gain taxes. This way your charitable donation will be taxed less and go farther if given to a charity through a CRT, rather than a direct donation of proceeds from the sale of any appreciated asset. 

In the end, a charitable remainder trust is a prudent financial planning tool that benefits your favorite philanthropic endeavors while simultaneously offering ongoing financial returns. If you are evaluating your estate plan this holiday season, maybe consider the benefits of a charitable remainder trust. Besides, what is it they always say – the gift is in the giving?

For more information on charitable remainder annuity trusts, please contact Meghan R. Hartnett at mhartnett@lavellelaw.com or 847-705-7555.