When you’re developing your estate plan, one powerful tool to consider is a charitable remainder trust (CRT). A CRT may enable you to reduce your liability for income and estate taxes and diversify your assets in a tax-advantaged manner.

How Charitable Remainder Trusts (CRT) Work

A charitable remainder trust is an irrevocable trust that makes annual or more frequent payments to you, typically until you die. What remains in the trust then passes to a qualified charity of your choice.

Advantages of Charitable Remainder Trusts

  • Obtain a deduction. You will be eligible for a current income tax charitable contribution deduction for the value of the charity’s interest in the trust. Interestingly, the deduction is permitted when the trust is created even though the charity has to wait to receive anything.
  • Enhance your investment return. The charitable remainder trust pays no income taxes. Your trust can generally sell an appreciated asset without recognizing any gain. The trustee can then reinvest the full amount of the proceeds, which generates larger payments to you.

The trust will be eligible for the estate tax charitable deduction if it passes to one or more qualified charities at your death.

Replacing Value of Assets to Heirs

What about your heirs? To replace the value of the contributed property for your heirs, you could purchase a life insurance policy on your life. This is often funded with some of the cash savings from the charitable income tax deduction.

Through the leveraging effect of life insurance, it is often possible to pass on assets of greater value than those contributed to the charitable remainder trust. In this way, your heirs are not deprived of property they had expected to inherit.

Complex, Yet Invaluable

A charitable remainder trust is a complex arrangement. Yet, it is an invaluable planning tool in the right circumstances. Reach out to us to find out the best arrangement of estate planning tools for your future.

For more information on a charitable remainder trust or estate planning, contact us at 314-961-1600 or online.

About Smith Patrick CPA

Smith Patrick CPA is a St. Louis-based, family-owned CPA firm dedicated to providing personal guidance on taxes, investment advising and financial services to small businesses and financially active individuals. For over 30 years, our firm has focused on providing excellent service to businesses, non-profits, individuals and government agencies in St. Louis and the surrounding areas. Investment Advisory Services are offered through Wealth Management, LLC, a Registered Investment Advisor.