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3 Strategies for Managing a Charitable Remainder Trust

3 Strategies for Managing a Charitable Remainder Trust

February 13, 2023

If you know that you want to leave behind a financial legacy for your loved ones and to make a difference with the charity of your choosing, a charitable remainder trust might be your best bet. 

Charitable remainder trusts allow you to donate assets like cars, real estate, and even antiques for the future benefit of you or your beneficiaries. However, managing this type of account can prove to be more complex than most people bargain for. 

How can you make the most of your charitable remainder trust and the contributions that you can make now, during your lifetime? This guide will walk you through three strategies that will help you maximize your investments. 

Benefits of a Charitable Remainder Trust

Many people considering the creation of generational wealth will come across tax-advantaged accounts known as charitable remainder trusts (CRTs). Understanding the inherent benefits of these types of accounts is crucial to managing your assets. 

You can fund this type of account with assets as opposed to strictly cash donations. One of the major benefits of CRTs is that they do not require you to pay capital gains taxes on the assets that you transfer and subsequently sell. 

Distributions are tax-deferred and can last for a set period of time or for the lifetime of your beneficiary, until the funds run out and it makes one last donation to the charity of your choosing. This ensures that you or your beneficiaries have a source of income, no matter what else may go wrong in life. 

Not to mention, you can plan a significant donation to charity with this type of account. A funded CRT may allow you to make a partial charitable deduction. This type of deduction is dependent on the charitable interest in the trust, so be sure to consult with a tax or CRT planning professional to see what you qualify to deduct. 

3 Strategies for Maximizing your Charitable Remainder Trust

Funding a CRT requires you to have a strategy in mind to make the most of your future income. Here are three clever charitable remainder trust strategies that help you to leave generational wealth for your beneficiaries. 

Selling Property Through the CRT

For many, the most advantageous way of funding the CRT is to sell their real property and assets through the trust. In order to do this, you would need to first donate the asset to the CRT. From here, you will act as a trustee and can coordinate the sale of the asset to ensure that you receive top dollar for it. 

This is true whether the account is funded with stocks, real estate, antiques, or other types of assets.

The benefit to selling property through a CRT is that you will not be required to pay capital gains tax on the proceeds at the time of sale. The trust itself is viewed as a tax-exempt entity according to the IRS. Plus, a portion of those proceeds will be gifted to the charity of your choosing which permits you take another tax deduction. 

Name a Donor-Advised Fund as the Charitable Beneficiary

After selling your property and upon the creation of the trust, you can name the charity you want to support or use a donor-advised fund. A DAF is a charitable investment account that allows you to fund the hard work that your favorite charity is doing. Upon making a contribution to a DAF, you can take an immediate tax deduction. 

Meanwhile, those funds will be invested and can grow without taxes hindering them. You can then make a recommendation for grants to be made to the charities that you know and love. As long as they are recognized as a public charity by the IRS, you can fund just about any charity that comes to mind. You can give your money to the charity now or in the future at the end of the trust. 

The good news is that this means you do not have to select a charity immediately upon creating the CRT. 

Combine CRT with Life Insurance

While a CRT can give your loved ones a source of income in the event of your passing, you can leave even more generational wealth with a sizable life insurance policy. Creating a CRT means that you will be taking some of your wealth away from your loved ones, as it is required to make a set donation to charity at the conclusion of the trust. 

You can balance out that loss with a life insurance policy while still gaining the tax benefits in the here and now. 

Any charitable donations are deducted when estate taxes are paid on your accumulated wealth. Because you have made the donation to charity through the CRT while you were still alive, these donations are not considered part of your estate. You will receive the tax benefits in the year that the contributions are made, but you will also have this extra benefit upon your death. 

Make the Most of Your Estate

One of the most powerful strategies for maximizing the benefits of your charitable remainder trust is working with industry professionals who understand the intricacies of this type of trust. Fiduciaries who have your best interests in mind will know the most strategic moves you can take to make the most of your assets and protect your estate. 

When you partner with Magellan, you’re part of the family. Our experts will help you identify which strategies are best for you and your charitable remainder trust, as there are no one-size-fits-all solutions here. If you need help setting up and managing your trust, reach out to schedule a consultation with our team of experts!