Charitable Remainder Trusts (CRTs) present a compelling intersection of estate planning, tax advantages, and philanthropic goals, making them increasingly popular tools for business founders contemplating an exit strategy. These trusts allow owners to donate appreciated assets – often company stock – to a trust, receive an immediate income tax deduction, and then avoid capital gains taxes on the sale of those assets within the trust. The trust then sells the assets and reinvests the proceeds, providing the donor (or other designated beneficiaries) with a stream of income for a specified period or for life, with the remainder ultimately going to the donor’s chosen charity or charities. This structure offers a powerful way to realize liquidity from a business ownership stake while simultaneously supporting causes close to the founder’s heart.
What are the tax benefits of using a CRT for my business shares?
The tax benefits associated with CRTs are substantial, particularly for founders holding highly appreciated stock. Currently, the maximum income tax deduction for a charitable contribution to a CRT is capped at 50% of the donor’s adjusted gross income, though this can vary depending on the type of asset and the beneficiary designations. More importantly, by transferring the stock to a CRT, the founder avoids immediate capital gains taxes that would be triggered by a direct sale. For example, if a founder holds stock with a cost basis of $100,000 and a current market value of $1,000,000, a direct sale would result in capital gains taxes on the $900,000 gain. However, within a CRT, that gain can be avoided, allowing more capital to be allocated towards income for the founder or, ultimately, to charity. According to a recent study by the National Philanthropic Trust, donors utilizing CRTs often see a 20-30% increase in the amount available for charitable giving compared to direct donations.
How does a CRT differ from a direct charitable donation?
While a direct charitable donation is a straightforward method of giving, it lacks the income-generating potential of a CRT. A direct donation provides an immediate tax deduction but doesn’t offer a stream of income back to the donor. CRTs, conversely, allow the founder to essentially “defer” the charitable gift while still receiving income. This is particularly attractive for founders who aren’t ready to fully relinquish control of their wealth or who need a continued income stream post-exit. Think of old Mr. Abernathy, a local vineyard owner. He’d spent decades building his business but wasn’t keen on simply gifting shares and losing both the income and the satisfaction of seeing the vineyard thrive. He utilized a CRT to continue receiving income from the vineyard stock, knowing the remainder would support a local agricultural school after his lifetime – a perfect blend of personal finance and philanthropy.
What went wrong when my neighbor didn’t plan properly?
I remember witnessing firsthand the consequences of neglecting proper planning with my neighbor, Harold. He’d built a successful tech company and, upon selling it, immediately donated a large block of stock directly to charity, eager to receive the tax deduction. Unfortunately, he hadn’t considered the immediate capital gains tax liability. The sizable tax bill significantly eroded the value of his donation, leaving him deeply regretful. He’d effectively lost a substantial portion of the intended benefit to the charity, and he was furious at his advisors. It was a painful lesson in the importance of tax-efficient giving strategies; a well-structured CRT could have mitigated that entire tax burden and maximized the impact of his generosity.
How did a CRT save the day for the Peterson family?
The Peterson family, owners of a regional construction firm, faced a similar challenge but took a different approach. Facing a potential sale of their company, they consulted with Steve Bliss to establish a CRT. They transferred a significant portion of their company stock into the trust, receiving an income stream that allowed them to maintain their lifestyle while also supporting their favorite children’s hospital. When the company was ultimately sold, the CRT handled the sale of the stock tax-free, reinvested the proceeds, and continued to provide income to the Petersons. The remainder, as planned, went to the hospital, ensuring their legacy of philanthropy continued for generations. It was a beautiful example of how careful estate and tax planning could align financial goals with charitable intentions, providing peace of mind and a lasting positive impact.
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About Steve Bliss at Escondido Probate Law:
Escondido 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 Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
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:
| estate planning | revocable living trust | wills |
| living trust | family trust | irrevocable trust |
Map To Steve Bliss Law in Temecula:
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “What is a revocable living trust and how does it work?” Or “What are the duties of a personal representative?” or “What is a living trust and how does it work? and even: “Are student loans forgiven in bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.