Charitable remainder trust: A powerful financial planning tool

Phillips, Lawrence C.; Robinson, Thomas R.
August 1997
Journal of Financial Planning;Aug1997, Vol. 10 Issue 4, p70
Academic Journal
This article discusses the use of a charitable remainder trust (CRT) as a tool to achieve financial planning objectives. A charitable contribution income tax deduction is allowed for qualifying transfers to charitable organizations, or an estate tax deduction is allowed if property is transferred to a charitable organization at death through a testamentary disposition. A charitable bequest during life also reduces the amount subject to estate taxation. A lifetime bequest, therefore, serves to reduce both income taxes and estate taxes. An outright lifetime bequest may not be preferred, however, since the donor loses control over the asset or the income stream generated by the asset, or both. A CRT is a unique tool to minimize the adverse effects of both income tax and wealth transfer taxes. It can be useful to make a bequest during life, reducing income and estate taxes yet retaining some control or income during the donor's life, and in some cases for a period of time after death. Tax planning opportunities depend on the type of assets used to fund the CRT and the type of CRT selected. A second and significant tax advantage of a CRT is that the donor receives a double tax benefit when the trust is created (that is, for income tax purposes, a charitable contribution deduction is allowed equal to the present value of the remainder interest given to the charity).


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