| Estate & Gift Tax / Charitable remainder trusts |  |
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There is a very powerful estate
planning tool that may enable you to reduce your liability for income
and estate taxes and diversify your assets in a tax-advantaged manner.
It's called a charitable remainder trust (CRT). Here's how it works. A CRT is an irrevocable trust that
makes annual or more frequent payments to you, typically until you die.
What remains in the trust then passes to a qualified charity of your
choice. A number of advantages may flow from the CRT. First, you will obtain a current
income tax charitable contribution deduction for the value of the
charity's interest in the trust. The deduction is permitted when the
trust is created even though the charity has to wait to receive
anything. Second, the CRT is a vehicle that
can enhance your investment return. Because the CRT pays no income
taxes, the CRT can generally sell an appreciated asset without
recognizing any gain. This enables the trustee to reinvest the full
amount of the proceeds and thus generate larger payments to you for your
life. The trust will be eligible for the
estate tax charitable deduction if it passes to one or more qualified
charities at your death. If you wish to replace the value of the
contributed property for heirs who might otherwise have received it, you
could use some of your cash savings from the charitable income tax
deduction to purchase a life insurance policy on your life for the
benefit of your heirs. Often, through the leveraging effect of life
insurance, it is possible to pass on assets of greater value than those
contributed to the CRT. In this way, your heirs are not deprived of
property they had expected to inherit. A CRT is a very complex arrangement, but it is also an invaluable planning tool in the right circumstances. |
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