Advising Clients since 1980
Charitable Remainder Trusts
A properly structured charitable remainder trust (CRT) allows you to diversify a concentrated wealth position in a tax-effective manner, creates liquidity for you or a person you designate, and ultimately benefits the charity of your choice. CRTs are typically used to fulfill investment and estate-planning, as well as philanthropic, goals.
How They Work
To set up a charitable remainder trust, you donate assets, often appreciated stock, to a trust with two types of designated beneficiaries non-charitable (typically yourself) and charitable. You have the option of serving as trustee of the trust, responsible for investing or hiring managers to invest the trust’s portfolio. The trust pays you, or the person you designate as the non-charitable beneficiary, income on a regular basis for a specified term either for life or for a set period of twenty years or less. At your death or at the end of the set period, the charity receives the value remaining in the trust.
Pros
When you use a CRT as a method of donating to a qualified charitable organization, you generate an immediate tax deduction based on the difference between the appreciated stock value and present value of the income interest in the trust retained by the non-charitable beneficiary. Because the CRT is a tax-exempt entity, a sale of assets contributed to the CRT by the trust occurs tax-free. As a result, the entire sales proceeds may be invested in a diversified portfolio that is working both for you and for the charity. The trust provides you or the person you designate with a steady stream of income from the diversified investments (for example, 8% of principal value each year), with the remainder going to the designated charity at your death or at the end of the trust period.
Cons
One of the chief drawbacks of CRTs is that once you set them up, they are irrevocable. You do not own the stock the trust does and you cannot reclaim it to pass it on to your heirs. Because the trust owns the stock, it is also in ultimate control of investing the portfolio. Of course, if you are the trustee of the trust, you do have more control over how it is invested, but this is not always the case. Depending on your financial objectives, a CRT may not provide you with the right benefits and may unduly restrict your assets.
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Charles M. Bloom, Registered Principal offers securities and advisory services through Centaurus Financial, Inc. - Member FINRA and SIPC - 775 Avenida Pequena, CA, 93111 (mailing address: 3905 State Street Suite 7173, Santa Barbara, CA, 93105) - CA Life Insurance License No. 0A52786 - Centaurus Financial, Inc. and Shoreline Wealth & Investment Management are not affiliated companies.
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