A Massachusetts trust is a legal document that can hold legal title to your assets. Think of it like a box where you can hold your assets. A charitable remainder trust (CRT) is an irrevocable trust (it can’t be changed or dissolved after it’s created) that generates a potential income stream for you or other beneficiaries you choose, with the remainder of the assets going to one or more charities. This type of trust is often used in high-net-worth estate planning.
There are two types of charitable trusts:
- Charitable remainder annuity trusts (CRATs) distribute a fixed annuity amount each year, which gives you a level income. Additional contributions aren’t allowed.
- Charitable remainder unitrusts (CRUTS) distribute a fixed percentage based on the balance of the trust assets, so it provides you with a variable income.
How a CRT Works
- A trust document is drafted is created.
- Assets are transferred to the trust to be managed by you or another person or an entity you choose as trustee. The trustee manages the contents of the trust.
- Payments are made from the trust to you and/or beneficiaries you name for your lifetime or a specific period of time you choose.
- When the trust ends, its remaining assets become a gift to one or more charities of your choosing.
Benefits of a CRT
In addition to supporting worthy charities, you’ll be:
- Converting any appreciated assets into something that offers lifetime income, earning you more income now (and throughout your life) than you would if you simply sold assets on your own
- Earning protection against creditors for the assets inside the CRT
- Allowing charities to plan for your contribution, expecting future benefits from the trust
- Saving your estate the cost and time involved in probate since amounts used to fund your trust won’t be part of your probate when you pass away
CRTs also have some tax benefits:
Income Tax: You can take an income tax deduction, spread over five years, for the value of your gift to the charity.
Estate Tax: When the trust property eventually goes to the charity it’s no longer in your estate—so it isn’t subject to estate tax.
Capital Gains Tax: The CRT turns appreciated property (property that has increased significantly in value since you acquired it) into cash without paying capital gains tax on the profit.
The named income beneficiary will pay income tax on the income received.
Assets to Donate to a CRT
- Real estate
- Publicly traded securities
- Some types of closely held stock (CRTs cannot hold S-Corp stock)
- Certain other complex assets
If you’re looking for high-net-worth estate planning, I’ll work with you to create a plan that meets your specific needs, including a charitable remainder trust, if that’s your decision. Contact us today to schedule a free, no-obligation consultation.