There is the temptation to just sell off assets that you’ve accumulated and take the cash. However, that generally results in a tax bill. There may be a way to profit more from those assets by giving them away.
By setting up a charitable remainder trust (CRT), you might be able to transform a tax liability into a tax break, receive a steady source of income possibly for the rest of your life, and potentially leave a gift to your favorite charity.
Let’s say you spent $50,000 years ago on a stock that’s now worth $350,000. You could sell it, but then you would owe federal long-term capital gains taxes on the profit and you may owe state taxes as well.
As an alternative, you could set up a CRT to benefit one or more charities. You transfer the stock to the CRT and the tax-exempt trust sells the shares and reinvests the entire $350,000 in a portfolio that you could administer. In return, you defer the capital gains tax, possibly permanently. In addition, you get payments for years to come. Plus, you get an immediate tax deduction for a portion of your contribution.
Please keep in mind that there will be costs involved in setting up a CRT. A trust document will need to be prepared as well as related initial costs. There could also be ongoing costs related to brokerage accounts as well as preparation of a federal return and possibly a state return each year the trust is in existence.
Please note that a CRT is only one option. If you have assets that have grown in value over the years, contact our firm to discuss the most tax-efficient ways to get them out of your estate.