When should you use a charitable remainder trust?
June 19, 2019
When planning your Michigan estate, you have your choice of several tools. One such tool is a trust. If you are like most people, you are familiar with two types of trust — a revocable trust and an irrevocable trust. However, these two options are the most basic of trusts. There are nine different types of trusts you can use to protect and distribute your assets. One such trust is the charitable remainder trust.
According to Investopedia, a charitable remainder trust is an effective estate planning tool if you own assets that have a low basis and that appreciate over time. Some such assets would include stocks and real estate. When you fund your trust with these types of assets, the assets will still appreciate in monetary value, but you can sell them without incurring capital gain. This results in two main benefits.
First and most importantly, when you use a CRT, you can transfer appreciated property without having to worry that the recipient will have to pay a high estate tax on it. Though Michigan does not charge an estate tax, this benefit might apply if you own assets in a different state or plan to move out of state come retirement age.
Second, a CRT allows you to claim a charitable income tax deduction. This is the case even if you do not transfer your assets to a charity.
If you use a CRT, you can name one of two types of beneficiaries. The first is, of course, a charity. The charities you name in the trust receive the residual principal of your trust upon yours or your spouse’s death.
The second type of beneficiary you can name is an income beneficiary. This might be you, your spouse or you and your spouse. If you do this, the income beneficiary would receive a set amount of income during his, her or your lifetime.
This article is for educational purposes only. You should not use it as legal advice.