Maybe it should stand for “can reduce taxes,” but CRT is short for charitable remainder trust. By using a CRT to donate appreciated assets to a charity, you get to take an income-tax deduction and receive a lifetime income from the trust.
Here’s How It Works
With a charitable remainder trust, you transfer assets, such as stocks or real estate, into the trust. The trust has the option of retaining the assets or selling them and investing the proceeds. Since the trust is tax exempt, it won’t pay capital gains tax on the sale of donated assets that have appreciated in value.
Advantages to You
You’re entitled to take a charitable contribution deduction for a portion of the value of the donated assets on your income-tax return. The deduction may be taken in the year you establish the trust, subject to tax law limitations.
You’ll receive income from the trust for life or for a specified period of years. (You will generally owe taxes on these distributions.) Upon your death or at the end of the trust term, the charity you’ve named receives the principal remaining in the trust.
Another benefit: The assets you donate to the charitable remainder trust are removed from your estate for estate-tax purposes.
There Are Disadvantages
When you die or the trust term ends, the assets remaining in the trust go to the designated charity, not to your loved ones. One way you can provide for your family is to use a portion of your lifetime payments from the charitable remainder trust to fund a wealth replacement trust with a life insurance policy. The insurance proceeds are paid to your beneficiaries at your death, possibly with favorable estate-tax treatment.
Creating a trust can be a complex process, we recommend contacting a financial professional to assist you.