Estate planning is something that many people delay due to the perceived difficulty of getting their finances in order. But what if you could make one wise decision now and know that you and your beneficiaries will benefit for a lifetime in addition to helping meaningful causes?
With charitable remainder trusts, it is possible to do it all in one fell swoop.
CRT estate planning is easier than you might think when you entrust it to professionals. Here are the top six benefits that you can expect when managing your wealth for your retirement, the future of your heirs, and your community.
1. Enjoy Income for Life or a Term of Years
Maybe you have no financial concerns right now, but you want to shield yourself from the risk of running out of money in your golden years. Retirement can be long and expensive, especially if you want to take advantage of your new free time to travel, splurge on luxuries, and enjoy the life that you could not while working full-time and climbing the corporate ladder.
A charitable remainder trust may be the solution you are looking for to establish income later on down the road. While many people use CRTs as a way to take care of their loved ones by setting up an income for them, you can also use those funds to pay yourself in the future, or beginning immediately.
You can take a regular distribution from the CRT for the rest of your life, a set term of years, or both before you donate the remainder to charity.
2. Get Tax Advantages
One of the biggest concerns for people who have accumulated wealth is that the government will ultimately benefit from how hard they have worked. A charitable remainder trust is a solution that allows you to skirt some of the taxes that might otherwise be imposed on your income and savings.
How does it work? To start, a charitable remainder trust exists to donate a minimum of 10 percent to the qualified charity of your choice. When you donate your cash or assets to the CRT, you can take a charitable deduction that allows you to minimize your tax liability on the money placed inside the trust, but also on a portion of your ordinary income. It can even be used to help offset a Roth conversion.
Additionally, you can avoid capital gains tax when contributing highly appreciated assets. Instead of selling assets like stock or real estate outright, you can donate them to the trust and allow the trust to sell them. The benefit of this transaction is that you can retain the full value of the asset without having to pay the hefty capital gains tax which reduces how much you can then reinvest for income.
Last but not least, you can reduce your taxable estate with CRT estate planning. Anything that you place inside the trust is no longer part of your estate for tax purposes. It is a great way to minimize your tax liability.
However, be warned: if you do not comply with the rules and nuances, you could lose all the tax advantages and might end up paying back the IRS, including penalties and interest.
3. Meet Philanthropic Goals
For many people, the most important part of having wealth to their name is that they have an opportunity to make a major impact on their community and the world around them. When you use some of your wealth to establish a CRT, you are earmarking funds to go to a good cause.
A minimum of 10 percent of the value of the trust gets donated to a qualified charity that you specify. While you may not be around to see that donation put to good use, it still creates a legacy for your name and your family.
4. Diversify Your Portfolio
You’re likely familiar with this advice, but it’s always worth repeating: diversifying your portfolio is essential when it comes to managing your wealth.
A charitable remainder trust allows you to contribute a diverse range of investments which can grow and increase in value over the term of the trust. You do not have to contribute cash only.
5. Planning for Illiquid Assets
If you have a lot of high-value illiquid assets like real estate or stocks, you may want to consider how those assets will get passed to your heirs or beneficiaries. It can be cumbersome and quite time-consuming to get those funds transferred upon your passing and could result in heavy taxes that minimize your gift.
Instead, you can place them in a CRT right now and let them sell or continue to grow until the time is right to pass them to your beneficiaries. They get the benefit right away, as soon as payouts from the trust begin rather than waiting for them to be transferred to their name the way that you may ordinarily encounter.
6. Avoid Probate
After your passing, the assets that remain in your name will not be automatically transferred to the people you love. Oftentimes, they will have to go through probate court which can be a huge ordeal. Your loved ones are already grieving your passing and probate may be just one more thing that tears open the wound again and again until the case is finally closed. This is also the time when heirs have an opportunity to not get along so well.
A CRT allows them to skirt probate and start benefiting from the trust right away, providing some much-needed stability in a tumultuous time.
Plus, it also takes the transfer of wealth out of the public record. Anything that is transferred to their name through the probate system is going to be a part of the public record, available for anyone and everyone to see. If you want to keep your wealth and estate private, then it might be best to set up a CRT now.
Reach Out to Magellan Today
Are you ready to start planning for a financial legacy that benefits your loved ones, community, and the greater good? Magellan offers the comprehensive estate, financial, legal, and tax planning necessary to establish a charitable remainder trust. We can walk with you through the logistics of establishing your trust today.
Let us be your one-stop shop for all things related to your CRT estate planning today!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.