If you own an appreciated asset and are interested in charitable giving, then a Charitable Remainder Trust (CRT) may be of significant value to you. A highly-appreciated asset will have a much lower basis resulting in a large capital gains tax bill due after the sale. Rather than pay the capital gains out of the proceeds of the sale, the property owner transfers the property into the CRT, entitling the owner to an immediate tax deduction. The appointed trustee of the CRT sells the property and invests the proceeds based on the instructions detailed in the trust document. If the funds are earmarked for charity than capital gains taxes aren’t due. As Grantor, you are able to receive an income based on the value of the trust assets, either for a period of years or the rest of your life.
Often this strategy is coupled with the purchase of life insurance. Tax savings are combined with the income stream from the assets and a permanent life insurance policy is purchased to be held in trust. The result is a large charitable gift with accompanying income tax deduction, a lifetime income stream, a larger return on the sale due to capital gains tax savings, and a considerable tax-free resource available for your chosen beneficiaries.
There are various types of CRTs that reverse the formula or payout differently. The key ingredients, though, are an asset to be sold with hefty gift tax concerns, and a charitable disposition.