The higher federal tax rates that kicked in this year have given all these variants of the four-decade-old charitable remainder trust new appeal for upper-income folks. While such trusts have never gone out of fashion for the truly charitably inclined, these days “people are motivated to do it just for the tax law changes,”
When it comes to charity, sometimes doing good means giving away. Sometimes, however, it is good to “give and receive.” Depending on your assets, you might want to consider creating a charitable shelter trust.
These trust are known by some rather silly acronyms, like CRUTs, CRATs, NICRUTs, NIMCRUTs, or Flip CRUTs. Nevertheless, the power behind this alphabet soup of sorts can cut your capital gains taxes or fund a retirement while benefiting your favorite charity at the expense of the IRS.
The world of the CRUT and all its brethren is familiar to some, but alien to many. If you are among those in need of some background education on this timely subject, then a couple of recent articles from Forbes are worth reading.
The first is titled “Charitable Shelter: How CRUTs Cut Capital Gains Tax.” As this article notes, you can use a CRUT, or Charitable Remainder Unitrust, to cut your capital gains taxes by using the trust to sell highly appreciated assets without triggering any taxation, to provide you with an annual income stream, and then to leave the remainder to charity. With all increases in the capital gains tax considered, and other specific taxes besides, a CRUT can mean preserving more than 20-30% of the value of the asset of the top to benefit you and charity.
For some additional perspective on the use of charitable trusts consider reading a companion article of real stories from Forbes titled “Three Donors Tell Why They Set Up CRUTs.“
As you might imagine, choosing the right charitable remainder trust depends a great deal on your assets, your needs, and the likely timespan before the charitable part comes into play. As with all estate planning, this is not a do-it-yourself project.