HALBERT HARGROVE

By Vincent R. Birardi, CFP®, AIF®, Wealth Advisor at Halbert Hargrove

A Charitable Remainder Trust (CRT) is a great way to donate your personal assets to charitable organizations you care about – while also providing you with, potentially, considerable relief from capital gains taxes.

What is a charitable remainder trust?

To establish a CRT, you transfer appreciated assets like stock shares and real estate into an irrevocable trust. This removes these assets from your personal estate so no estate taxes will be due on them when you die. You also receive an immediate charitable income tax deduction on the current value of these contributions.

The CRT trustee (whom you can designate when establishing the CRT) then sells the asset at full market value, paying no capital gains tax, and reinvests the proceeds in income-producing assets. For the rest of your life, the trust pays you an annual income. You can decide when exactly in the future to begin taking that income. When you die, the remaining CRT assets go to the charities you have chosen – hence the term Charitable Remainder Trust.

Pros and cons of charitable remainder trusts

Pros:

  • No capital gains taxes are paid by the donor when the donated assets are sold.
  • Donated assets are no longer part of your estate thus lessening any future estate tax liabilities
  • You can receive an income stream from the reinvested proceeds of the CRT.

Cons:

  • The CRT is irrevocable, meaning that with very few exceptions, it cannot be changed once it is created. (Legally, you no longer have control of the assets in the trust.)
  • Any part of your estate that goes into the CRT will go to the charitable organization of your choice, and not to your heirs.
  • Distributions from the CRT to the income beneficiaries might be taxable as ordinary income.

What are the tax implications for charitable remainder trusts?

Establishing a CRT reduces your income taxes now and estate taxes when you die. You pay no capital gains tax when the asset is sold. It also lets you provide support for one or more charities that have special meaning to you.

Is a charitable remainder trust a good idea?

A CRT may be appropriate for you and your family. We here at Halbert Hargrove would be happy to discuss this further with you to see if it is.

Disclaimer:

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.