Top 10 Tax Benefits of a Charitable Remainder Trust (CRT)

Sell Your Highly Appreciated Assets Tax-Efficiently

In contrast to its name, a Charitable Remainder Trusts (CRT) is not just for the charitably inclined. In fact, anyone with highly appreciated assets can use a CRT to their benefit. CRTs allow individuals to convert their highly appreciated assets into lifetime income in a tax-efficient manner.

However, There's a Catch

Some recent tax proposals out of Washington D.C. this year sought to tax Long-Term Capital Gains at ordinary income tax rates and to substantially remove the benefits of a CRT established after 12/31/2022. While these proposals were not included in the recent Inflation Reduction Act, there is no guarantee that such proposals may not reappear again later this year. Therefore, 2022 may be the last year to take advantage of CRTs.

Here are the top 10 benefits of a CRT and why you should act sooner rather than later.

10 Reasons to Transfer a Highly Appreciated Asset to a CRT Now

1. The CRT can sell the asset with no upfront tax cost at both Federal and State levels.
2. Full proceeds are re-invested immediately in a balanced portfolio. If shares are sold without a CRT, only the post-tax amount gets re-invested. Also with no CRT, taxes would currently take 37% of sale proceeds – and that “tax take” could be over 55% if proposed tax changes happen in 2023.
3. The CRT will pay an annual distribution for the rest of the donor’s (and spouse’s) life, or the CRT term. The exact rate of distribution is age dependent – 5% of trust assets for a donor aged 40 to 20% aged 75.
4. Donors will only pay taxes as distributions are received from the CRT. Distributions received will be rich in capital gains and qualified dividends.
5. You will get a tax deduction of approximately 10% of the transfer value, subject to Adjusted Gross Income (AGI) limits.
6. When the CRT is established, there is flexibility to allocate more, or less, assets that go to the charity at the trust termination.
7. Because the donor participates in the growth of the CRT assets, the CRT represents a hedge against inflation.
8. At the second passing of donor and spouse, the trust assets pass to a charity of the donors’ choice.
9. Assets transferred to a CRT, in most circumstances, do not attract gift tax. 
10. Assets transferred to a CRT will be outside your taxable estate for estate tax purposes. 

Interested in learning more about the Charitable Remainder Trust and its many tax benefits? Download our white paper About Charitable Remainder Trusts or contact BakerAvenue to speak with a tax expert.