As we get older, our love for certain causes or philanthropic groups often grows. It’s possible to turn this passion into a key piece of your estate plan, ensuring you leave a lasting impact in a space you care about. There are even ways to do this that can provide other benefits for yourself and loved ones.
One tool people are often curious about is the charitable remainder trust (CRT). Here are four things you should know about this charitable planning tool.
1. Beneficiaries first, charity second
A CRT, when correctly prepared, can generate a regular source of income (for yourself or another named beneficiary, such as an heir) while also setting aside funds for charity.
How does it work? You contribute an asset to the trust. This asset is then sold and that money reinvested. From those reinvested funds, the beneficiary receives a predetermined amount on a regular basis.
Once the trust’s term is completed, whatever funds remain go to a designated charity.
2. You want to use appreciated assets
In order to be the most effective, you will want to use a valuable, appreciated asset to initially fund a CRT. This might include:
- Real estate
- Certain stock holdings (though there are some restrictions)
- Publicly traded securities
- Cash savings
- Other complex assets
The value of the asset you use to fund a CRT is going to determine how much revenue it might generate, as well as how much ultimately goes to charity.
3.There are potential tax benefits
In addition to having a positive charitable impact, a CRT can provide some valuable tax benefits. That is because it is a tax-exempt entity. If done correctly, a CRT may help alleviate your income, estate and capital gains tax burdens.
4.You cannot change a charitable remainder trust
A charitable remainder trust is irrevocable. That means, once finalized, the terms are set in stone. You cannot make changes and you will not be able to retake ownership of the asset. Because of this, it is absolutely vital you understand – and are comfortable with – every aspect of the CRT. One misstep or misconception could result in very unfortunate circumstances down the line.