A Planner's Perspective: Charitable Remainder
Trusts
(from the Summer 2000 DCF Newsletter)
A Charitable Remainder Trust (CRT) has two phases:
first it provides income to the donor; later, it provides a sizable
gift to charity. To make the gift, the donor transfers an asset -
often, appreciated stock - to the trust. There it can be sold, free
of capital gains tax, and the proceeds are reinvested. The donor
(and/or other persons) receives income - in the form of an annuity
or a fixed percentage of the trust’s assets - from the trust for
life or a term of years. Ultimately, the trust remainder benefits
charity.
“A Charitable Remainder Trust can present a winning
situation for a client who is charitably inclined,” explains Thomas
R. Pulsifer, an attorney with Morris, Nichols, Arsht and Tunnell and
a member of the DCF Board of Directors. “It can allow a donor to
diversify his or her investments without paying capital gains taxes,
receive a stream of payments from the trust, claim an income tax
deduction currently, and make a significant gift to charity.”
The desire to make a gift is key in establishing a
CRT, according to Mr. Pulsifer. With that established, the donor’s
attorney tailors the trust to meet the donor's needs. The DCF works
with the donor and advisor to ensure that the charitable intent is
fulfilled.
A donor may establish a donor-advised fund at the
DCF and direct that the CRT remainder pay out to this fund. “In that
case, the donor's children are able to recommend charitable grants
from the fund,” Mr. Pulsifer explains. “The CRT/donor-advised fund
combination provides a situation in which everyone wins.”
Advantages of a Charitable Remainder Trust
-
The donor takes an income tax charitable deduction
when the trust is established.
-
The donor avoids capital gains tax that would
otherwise be due on appreciated assets used to fund the trust.
-
A CRT often provides higher income than the
transferred assets were yielding.
-
Income payments may be deferred, thereby allowing
the donor to save for future expenses (such as retirement or a
child’s education) on a tax deferred basis.
-
The size of the donor's estate is decreased,
helping to reduce or eliminate estate taxes.
-
The donor makes a significant charitable gift.
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