Tax Savings
A CRT is an irrevocable trust that benefits the donor and the charity. By creating a CRT, clients can reduce both income and estate taxes.  The trust is funded by a gift of property.  Because no capital gains tax is due if the trust is funded with appreciated assets, additional tax savings can be achieved.  While the donors (or any other named beneficiary) are alive, they receive an income interest from the trust.  At death, or at the end of the trust term, the remaining values in the trust go to a charity.  The Internal Revenue Service provides tables to determine the value of the remainder interest that is available as a charitable income tax deduction.

 

Fund Life Insurance
Clients can use the trust income to make gifts to an irrevocable life insurance trust.  This trust can provide life insurance for the heirs to help replace assets going to the charity at death.  The gifts may reduce the net estate, thereby reducing estate taxes.  The heirs receive the net estate after estate taxes and expenses, plus life insurance proceeds from the irrevocable life insurance trust.

 

Example
Bob and Judy Lane, both age 60, create a charitable remainder unitrust that pays them income during both of their lifetimes.  When the trust ends, their church receives the remainder of the assets.

 

Step 1: The Lanes transfer $1 million in stocks to the trust (avoiding possible capital gains tax at 20% of $200,000).
Step 2: The Lanes receive a tax deduction of $185,000.
Step 3: The Lanes receive 7 percent of the value of the trust as income each year.
Step 4: At the second death, the church will receive the remainder of assets in the trust.
Step 5:   With the savings from the tax deduction and income from the trust, the Lanes purchase life insurance equal to the value of the stocks to replace the inheritance for their children.  

 

Charitable remainder trusts can remove assets from the estate, yet allow clients to keep an income.  Combined with an irrevocable life insurance trust, the heirs benefit as well as the charity.