There are numerous ways people share their wealth with others: giving to children, grandchildren and charities are just a few examples. I find that Central Oregonians are giving people. I believe this is due to the fact that most have made a conscious choice to live, work, recreate or retire here in the high desert and giving back to the community is very important to them. I would not be surprised if we have more non-for-profits per capita than any other community in the county. The spirit behind Sagebrush is a great example of this.
I have always told my kids that the more they give the more that will get in their lives. In this article, I will share an estate planning technique that takes this thought to the next level! When properly structured, it is a win for the donor, their heirs as well as their charity(s) of choice.
In addition to the joy of giving, there are a number of other incentives for charitable contributions that I find many successful people are not aware of. Some of these diverse objectives may be achieved through a type of tax-exempt trust known as a Charitable Remainder Trust (CRT).
Here are the basics: A donor establishes a CRT by transferring debt-free assets into an irrevocable trust. Once the assets are sold by the trustee, the proceeds of the sale are invested in an income-producing portfolio. In the case of a married couple, this income can last until the death of the surviving spouse when the principal of the trust passes to the designated charity or charities. Appreciated stock, real estate or other appreciated assets can be converted into an income stream to provide retirement income while assisting a worthwhile charitable cause.
In establishing a CRT, the donor receives:
An income tax deduction for the present value of the trust’s remainder interest directed to the charity.
Lifetime annual income for the donor and spouse.
The satisfaction of helping a worthy cause as the principal of the trust is distributed to a designated charity.
The potential avoidance of capital gains taxes. (see more details below)
A more diversified investment portfolio.
The reduction or elimination of potential estate taxes as the donor’s estate is reduced by the assets transferred into the trust.
If you currently own highly appreciated assets — such as stocks or property — and would like to sell the asset, but are concerned about paying a large capital gains tax, a CRT allows you to enjoy the benefits of the appreciated assets, without having to pay any capital gains taxes. A CRT may offer substantial financial flexibility, even to middle-income bracket taxpayers who have held onto non-income producing assets, simply because they don’t know about helpful alternatives.
While developing strategies to reduce estate tax while increasing charitable contributions may be important priorities, most grantors don’t wish to disinherit loved ones. This situation can be addressed by using a portion of the income generated by the CRT to purchase a “wealth replacement” life insurance policy. The amount of insurance “replaces” the value of the assets gifted to the CRT that will eventually pass to your named charity(ies).
The proceeds of this policy can be arranged to pass free from both income and estate taxation, if properly structured, to the family’s children or heirs at the death of the surviving spouse.
CRTs are governed by a complex network of regulations. To ensure both the charitable contribution and full tax benefits, a CRT must be structured by an experienced estate planning team which includes an Estate Planning Attorney, CPA and a Wealth Manager with an extensive life insurance background. Business owners, as well as families and individuals, can benefit from the use of CRTs in achieving charitable, as well as financial objectives.
The benefits of a CRT are significant. In review they can also reduce your income taxes now, your estate taxes when you die, and allow you to help a charity that’s meaningful to you. In other words, you can still reap a benefit from the assets, enjoy the exhilaration of your benevolence, and your selected charity can secure a sizable gift.
David Rosell is President of the Rosell Wealth Management in Bend. He is the President of the City Club of Central Oregon and the Past Chairman of the Bend Chamber of Commerce. David can be reached at (541)385-8831 or www.RosellWealthManagement.com
Investment advisory services offered through Rosell Wealth Management, a State Registered Investment Advisor. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Ste 300 Akron, Ohio 44333-2431. 800 765-5201. Rosell Wealth Management is a separate entity from ValMark Securities, Inc.
