Charitable Remainder Trust (CRT)

A CRT is an irrevocable, tax-exempt trust with two parts: 1) the income interest, and 2) the remainder interest. The income interest is the income paid to the individuals who established the trust (or their designated beneficiaries) for a term of years or for their lifetime. The remainder interest is the money remaining in the CRT when the trust terminates. The remainder interest is given to the qualified organizations (including a family foundation) according to the donor’s choice as specified in the trust document. This program can only be offered by an investment adviser representative.

A charitable remainder trust (CRT) could address many of your personal financial goals while allowing you to make a significant contribution to the qualified organizations of your choice. CRTs are planning tools for you to take control of your social capital – the portion of your wealth that is customarily paid in taxes to the government. With a CRT, you designate the qualified organizations that will receive your social capital and receive significant financial benefits. Anyone who is subject to paying capital gain taxes on appreciations or whose estate is subject to estate taxes is a candidate to benefit greatly from a CRT.

The personal financial benefits of CRTs include:

1. Tax-Free Asset Conversion: Through a CRT, appreciated assets may be sold free from the erosion of capital gains. Asset conversion is the most visible financial advantage of using a CRT.
   
   
2. Current Income Tax Deduction: A gift to a CRT can provide you with a current income tax deduction to offset all forms of income.
   
   
3. Increased Cash Flow: You may own a highly appreciated asset that generates little to no income and be reluctant to sell it because the capital gains tax would consume one-fifth of its value and one-fifth of the resulting income. The ability to sell the asset free from capital gain taxes enables a CRT to generate more income for the recipients.
   
   
4. Lifetime Cash Flow Planning: With careful design and investment management, the CRT can defer income for a later distribution. This feature enables possible accumulation of income for retirement planning or for intermittent financial needs that may occur along the way. Income deferral can also enhance the value of the ultimate charitable gift.
   
   
5. Retirement Planning and Asset Management: Among other things, retirement denotes reduced management responsibilities. This may be true not only in the work place, but also with personal assets. A CRT not only provides the means to dispose of management intensive assets, it also supplies a mechanism for professional asset management during a person’s later years when it may be most needed or desired.
   
   
6. Gift and Estate Tax Planning: The CRT offers you an effective alternative to the payment of gift and estate taxes. Amounts transferred to a CRT are not generally subject to gift or estate taxes. The combination of capital gains, gift tax and estate tax avoidance can be very compelling for those who wish to control their social capital.
   

In addition to the gift and estate tax saving generated by the trust itself, the cash flow created by the funds can be coordinated with other estate planning techniques. The most common combination involves gifts of cash from you to an irrevocable trust or directly to family members who then use them to purchase life insurance. Commonly referred to as wealth replacement, the concept often enables you to provide a significant legacy to charity without disinheriting heirs.