The question of whether a Charitable Remainder Trust (CRT) can serve as a hedge against estate tax reform is complex, but the answer leans towards yes, with careful planning and understanding of the current landscape. As of 2024, the federal estate tax exemption is incredibly high—$13.61 million per individual—meaning relatively few estates are subject to the tax. However, this exemption is scheduled to be halved in 2026 unless Congress acts, potentially bringing a significantly larger number of estates into taxable territory. A CRT, when structured properly, can offer a degree of protection against this potential future tax liability, while also providing substantial charitable benefits and income for the grantor.
What are the potential benefits of gifting assets to a CRT now?
Gifting highly appreciated assets, like stock or real estate, to a CRT allows the grantor to avoid immediate capital gains taxes on the appreciation. More importantly, it removes those assets from their taxable estate, potentially shielding them from future estate tax increases. According to a study by the American Council on Gift Annuities, assets transferred to a CRT are valued at the time of transfer, meaning future appreciation escapes estate tax. This is particularly useful in a rising market. The grantor also receives an immediate income tax deduction for the present value of the charitable remainder interest, further enhancing the financial benefits. It’s not simply about avoiding taxes; it’s about maximizing the impact of your wealth and leaving a lasting legacy.
How does a CRT work in practice and what are the rules?
A CRT is an irrevocable trust that provides an income stream to the grantor or other designated beneficiaries for a specified term or life, with the remainder going to a designated charity. There are two main types: a Charitable Remainder Annuity Trust (CRAT), which provides a fixed income, and a Charitable Remainder Unitrust (CRUT), which provides an income based on a percentage of the trust’s assets. The IRS has specific rules governing CRTs, including the “50% test”, which ensures the charitable remainder interest is substantial enough. The payout rate from a CRUT cannot exceed 50% of the trust’s assets, and the payout from a CRAT must be at least 5% of the initial fair market value of the contributed property. These rules exist to ensure the trust isn’t primarily a tax avoidance scheme.
I remember old man Hemlock and his estate…
Old Man Hemlock, a shrewd investor, had amassed a considerable fortune in tech stocks. He was convinced estate tax reform was inevitable and held onto his assets, refusing to proactively plan. He figured he’d deal with it when the time came. When the exemption halved, his estate *was* subject to estate tax. Because he hadn’t planned, a significant portion of his wealth was lost to taxes, and his family received far less than he intended. His stubbornness, ironically, meant less went to the charities he’d always supported. He could have significantly reduced his estate tax liability and amplified his charitable giving by utilizing a CRT. It was a painful lesson learned too late.
But what about the Andersons?
The Andersons, on the other hand, were proactive. They consulted with Steve Bliss, an estate planning attorney in Wildomar, and established a CRUT, transferring a portfolio of appreciated stock. This allowed them to avoid capital gains taxes, receive an income tax deduction, and remove the assets from their taxable estate. When the estate tax exemption changed, their estate remained well below the threshold, and they were able to continue receiving income from the trust while knowing their favorite charities would receive a substantial gift in the future. They’d strategically positioned themselves to not just weather the storm of tax reform but to emerge stronger, having achieved their financial and philanthropic goals. As Steve often says, “It’s not about *avoiding* taxes; it’s about *minimizing* them legally and ethically while achieving your objectives.”
In conclusion, while a CRT isn’t a foolproof shield against all future estate tax changes, it can be a powerful tool to mitigate risk, reduce tax liability, and ensure your charitable intentions are fulfilled. Careful planning, informed by expert legal counsel like Steve Bliss, is crucial to maximizing the benefits and ensuring the CRT aligns with your overall estate planning goals.
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
- living trust
- revocable living trust
- estate planning attorney near me
- family trust
- wills and trusts
- wills
- estate planning
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/RdhPJGDcMru5uP7K7
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
(951)412-2800/address>
Feel free to ask Attorney Steve Bliss about: “Do I need an estate plan if I don’t have a lot of assets?” Or “What happens to jointly owned property during probate?” or “Do I still need a will if I have a living trust? and even: “Can I file for bankruptcy without my spouse?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.