Families have used charitable remainder trusts (CRTs) since 1969 to increase their incomes, save taxes, protect assets and provide a future legacy gift to the charities that are meaningful to them.
This planning works best if highly appreciated assets are used to establish a charitable trust, saving capital gains taxes of 25 percent to 39.6 percent that would be owed if the assets were sold outright.
By transferring all or a portion of the stock or real estate to a charitable remainder trust, the owner eliminates the capital gains tax and receives an immediate charitable tax deduction. The trust provides a secure stream of annual income either for a term of years or for a lifetime. The funds that remain at the end of the trust term are transferred tax-free to the charity or charities designated as beneficiaries. An added benefit to those with larger estates is the removal of the trust assets from the owner's estate, which would be taxed at the 40 percent estate tax rate, thus reducing the inheritance planned for family.
This creative gift strategy was used by a local business owner who was selling his business to supplement his retirement income. He was aware that the capital gains tax would significantly reduce the sale proceeds and ultimately his annual income. He also hoped to leave a portion of his assets to Summa Health after his lifetime in gratitude for the excellent care he and his family had received over the years.
Following discussions with his attorney and the gift planner at Summa Health Foundation, he learned that he could accomplish both of his goals using a charitable remainder trust. Because the trust is exempt from capital gains tax, he was able to use the full amount of the sale to fund the trust that provided guaranteed annual income at a much higher rate than if he had sold and invested the assets.
At the end of the term, the funds remaining in the trust transferred tax-free to Summa Health. This charitable gift continued the long tradition of giving he had established in the community and provided a significant gift to support the mission of Summa Health. His family celebrated his gift at a ceremony dedicating a permanent plaque in his honor placed at a special location in the hospital.
If you would like to learn more about charitable trusts and how they can be used to produce win-win results, please ask your professional advisor or contact Leave a Legacy Summit/Portage/Medina for a list of Partners who are estate planning attorneys and financial professionals that are experts in charitable planning.
-Barbara R. Boyce, MPA, CFRE
Senior Director, Gift Planning
Summa Health Foundation