As the Baby Boomer generation reaches retirement age in record numbers, many of these older adults revisit their estate plans. Grandparents may wish to set up trusts for the younger generations or look for ways to avoid inevitable estate taxes. Many people choose to make charitable donations for tax benefits, like setting up a charitable remainder trust (CRT).
A CRT operates similarly to other trusts in that it tucks assets, investments or cash away in a tax-free haven that matures upon death. CRTs offer a few additional benefits that many seniors find appealing.
The basics of a CRT
Individuals can set up a CRT with any charity they would like to support. Many local organizations, including libraries, parks and schools, can benefit from a CRT, making them fantastic ways for people to reinvest in their community. CRTs provide vital benefits to a specific charity and offer the donor a source of reliable income for the rest of their lives.
Establishing a CRT can provide the following benefits:
- Steady income: Assets in a CRT will appreciate over time, allowing a beneficiary to receive payouts as income. These streams can last as long as one’s life, the lives of the beneficiaries or a set number of years.
- Tax-free growth: The IRS defers all taxes from the growth of assets within a CRT. Beneficiaries must pay income tax upon receipt, but that is all.
- Continued charity: When the terms of the CRT expire, ownership of the asset switches to the charity of choice. This transfer also ensures the donor enjoys a lasting legacy of giving.
- Tax breaks: Those who fund a CRT can enjoy an income tax deduction based on the donation.
- Avoid capital gains tax: Retiring individuals frequently look for ways to reduce the value of their estate and avoid devastating taxes. Instead of selling these assets and paying 15-20% in capital gains taxes, people can place the money in a CRT. The asset avoids all taxes, allowing the charity to collect its value in full upon the transfer.
Interested in a CRT? A lawyer can help
People looking to explore charitable giving through trusts can bring their questions to a local lawyer familiar with Tennessee estate laws. A lawyer can recommend reputable charities, draw up the legal paperwork and oversee the proper transition of assets.