Anyone Use CRT To Avoid Capital Gains?
HI,
I just heard about CRTs and was wondering if anyone knows about/uses these.
Charitable Remainder. Trust (CRT)- for income generating assets. Avoids all taxes on capital gains. --I had never heard of this one and am curious if it really avoids all capital gains as the speaker indicated?--
Thanks[ Edited by viking777 on Date 03/20/2004 ]
I read the article that you are referring to. This article was WRONG in almost every aspect.
A CRT is an exempt entity and does not pay tax (it is generally used as a diversification and tax defferal tool). You contribute an asset ( usually low basis stock) you get a payout based on a percentage of the value (there are CRATs and CRUTs which have different payouts) and you also get a current charitable deduction for the Present value of the remainder going to charity when you die, based on current federal applicable rates and actuarial computations.
When the property is sold inside the trust the gain is recognized but not taxed. Therefore you will have the funds to diversify in the trust. The taxabiltity of the gain will pass out to you to the extent of you annuity payment from the CRT. You will always receive taxability to the extent of the annuity unless all of the taxability is passed out. Other income earned in the trust will not be subject to current tax unless distributed to you. Generally there is an order that the taxability is passed out. It is Highest taxed income to lowest, with the balance staying in the trust to next year.
You may be able to get a trustee fee from the trust for management of the assets... but generally anything but the annuity could be construed as Selfdealing and not be allowed by the IRS and have very large penalties.
Very wealthy people usually use this vehicle when they have low basis stock they would like to diversify, get current cash. They also must have charitable intent.
Hope this helps.
-Adam
The CRT avoids gain on the sale of an appreciated asset however, the devil is in the details. I have established no less than 50 CRT for various clients and I have turned away 100s because they have the wrong idea about CRT. Typically promoters of CRT do not understand how they work and I have run into several individuals who went to a seminar hosted by National Training Conference (Jay Mitton Group) and were sold a box of cr_p. The CRT can be a valuable tool in the right circumstances. Here are a few of my considerations before I establish one for my clients:
1. Should be over 45 years old
2. Have sufficient asset outside of CRt
3. Need tax deduction
4. No debt on asset transferred or debt is 5 years or older
Hope this helps.
Respectfully,
Clint Coons, Esq.