Donating appreciated assets outright is only one strategy available for obtaining a charitable deduction and avoiding capital gains tax. Another strategy worth considering is the transfer of assets into a charitable remainder trust (CRT). A CRT can provide you with a lifetime income and tax benefits.
You establish the trust for your lifetime — or for your life and the life of your spouse or other beneficiary — and receive an income from the trust during that period. A CRT can also be established for a specified number of years, but no more than 20. You get an immediate tax deduction for your donation, and you won’t have to pay capital gains tax on the assets’ appreciation. When the trust terminates, the assets remaining in the trust are transferred to the charitable organization designated in the trust document.
Your trustee may sell the assets transferred into the trust without incurring a tax liability because a CRT is generally tax exempt. You’ll be taxed only as you receive income from the trust.
Unitrusts and Annuity Trusts
The trust must be in the form of either a Unitrust or an Annuity Trust to qualify for the tax benefits.
A Unitrust pays a fixed annual percentage of the trust assets’ value, determined annually. The percentage stays the same over the term of the trust, but the payment changes with fluctuations in the value of the assets. The percentage must equal at least 5% and no more than 50% of the net fair market value of the trust property.
An Annuity Trust pays a fixed annual amount throughout the trust’s term. The annual payment must equal at least 5% and no more than 50% of the original value of the assets placed in the trust.
The amount of the charitable deduction you can claim is subject to IRS limitations.
We can help with all of your financial planning needs! Call us at 765.747.1300.
First Merchants Private Wealth Advisors products are not FDIC insured, are not deposits of First Merchants Bank, are not guaranteed by any federal government agency, and may lose value. Investments are not guaranteed by First Merchants Bank and are not insured by any government agency. This material has been prepared solely for informational purposes. First Merchants shall not be liable for any errors or delays in the data or information, or for any actions taken in reliance thereon. Any views or opinions in this message are solely those of the author and do not necessarily represent those of the organization.
