Is a Charitable Remainder Trust Right For You? 3 Questions

Question 1: What is a charitable remainder trust?

A charitable remainder trust, commonly abbreviated as CRT, gives you the opportunity to take an appreciating asset, such as an investment portfolio or real estate, and transfer it into a source of lifetime income. At the same time the trust allows you some significant tax benefits.

Question 2: How does the trust work?

When you create a CRT you transfer some of your assets to the trust, name the trustee, and name the beneficiary. The trustee then takes those assets, sells them for their full value, and uses the money to reinvest in something that will produce income for you. That income-generating asset will then pay you an income over the trust lifetime. After you die, the property the trust owns—the property the trustee bought after selling the original property transferred to the trust—will be transferred to the charity of your choice.

Question 3: What about taxes?

Charitable remainder trusts have some significant tax benefits. You don’t have to pay capital gains tax on the assets sold by the trust, and once the trust begins generating income you can also take a charitable income tax deduction based on the value of the property you transferred. Of course, the devil is in the details, and you will want to speak to your estate planning lawyer about how these trusts work and exactly what benefits you can expect to receive.