Crescendo
Charitable Remainder Trusts provide unique tax advantages for donors
By Bryan Howard
To strengthen its planned giving program, the Nashville Symphony has created a Legacy Advisory Council composed of leading professionals in the Middle Tennessee area who specialize in planned giving and estate planning. In this article, Nashville attorney Bryan Howard discusses the unique advantages of a charitable remainder trust. A co-founding member of Howard & Mobley, PLLC, Howard assists families with tax reduction planning and charitable giving. Certified as an Estate Planning Specialist in Tennessee, he is listed in the Best Lawyers in America (2001-2010 editions) in both the Tax and Trusts and Estates categories, was selected as one of the top 100 Lawyers in the U.S. by Worth Magazine in 2006 and 2007, was selected as one of the Best Lawyers in Tax Law by Corporate Counsel magazine in 2007 and 2008, and was selected by Business Tennessee magazine as one of the best trusts and estates lawyers in Tennessee in 2008 and 2009.
A charitable remainder trust (“CRT”) is an irrevocable trust that makes periodic payments to one or more non-charitable beneficiaries for a designated term, and pays the balance to one or more charities at the end of the designated term. The term can be a set number of years (not to exceed 20) or for the life or lives of the non-charitable beneficiaries. The payments to the non-charitable beneficiary or beneficiaries can either be defined as a fixed annuity amount (an “Annuity Trust”) or as a fixed percentage of the annually reappraised value of the trust (a “Unitrust”).
CRTs provide two significant tax benefits. First, you receive a charitable income tax deduction equal to the difference between the value of the assets contributed to the trust and the present value of the charitable interest, determined under IRS actuarial tables. Second, the trust is tax-exempt, which enables the trust to sell highly appreciated property without paying capital gains taxes. Even though the trust is tax exempt, the non-charitable beneficiary is taxed on payments received based on a tier system.
The two most common uses of CRTs for my clients have been avoiding capital gains taxes upon the sale of highly appreciated assets and pre-funding a planned testamentary bequest.
Assume you plan to sell real estate or marketable securities that you have owned for a long time. If you transfer the asset to a CRT and allow the CRT to sell the asset, the trust will be able to reinvest 100 percent of the proceeds without paying taxes. In addition to avoiding capital gains taxes, you will receive an income tax deduction that reduces your taxes on other income. Sometimes the donor purchases life insurance to provide the children with assets to replace the assets that will be distributed to charity after the donor dies.
Assume you plan to make a bequest to the Nashville Symphony through your will. Your estate will receive a charitable deduction for federal estate tax purposes, but will not receive an income tax deduction. If, instead, you establish a CRT that makes payments to you for your lifetime, with the remainder passing to the Symphony upon your death, you will receive a current income tax deduction. Your estate will also receive an estate tax deduction. By pre-funding the bequest, you will receive an income tax deduction that neither you nor your family would have ever received.
To learn more about the Nashville Symphony's Gift Planning programs, please click here.
