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Understanding the benefits of charitable remainder trusts

On Behalf of | Aug 25, 2021 | Estate Administration & Probate, Trusts |

High net worth individuals in Maryland are always looking for a way to conserve as much of their assets as possible for their heirs. A variety of trusts often fill the bill. One that you should consider is a charitable remainder trust.

What is a charitable remainder trust?

Charitable remainder trusts pay a percentage annually to beneficiaries throughout their lifetimes. As with all trusts, you technically don’t own the money, but you can receive a fixed percentage as long as you are alive. When the beneficiaries die, the remainder goes to one or more designated charities. A CRT has two main forms: a Charitable Remainder Annuity Trust (CRAT) and a Charitable Remainder UniTrust (CRUT). A CRAT distributes payments on a fixed percentage of the initial assets while CRUT pays an amount equal to the assets’ current value. Additional contributions are not allowed under a CRAT but you can do so in CRUT.

Benefits of CRTs

CRTs have several advantages as estate planning tools. They allow you to transfer highly appreciated stock to the trust, which helps avoid high capital gains taxes as CRTs are tax-exempt. They are also an efficient way to make charitable donation, and reduce the amount of estate tax owed, if applicable, for your heirs. The remainder that is donated to charity after your passing comes in the form of a tax deduction for that year. They can also provide you with a steady source of income when you are no longer working.

Because CRTs are difficult to set up, you should not try to do it by yourself. They are also expensive. Working with experienced professionals will help you to ensure that you’re handling your assets responsibly.