Tax Saving Techniques - Charitable Remainder Trust

It is possible through the use of a Charitable Remainder Trust to secure lifetime income, save taxes and benefit a charity. Since 1969, many families have used CRTs for these purposes.

A CRT lets you convert a highly appreciated asset (stock, real estate, etc.) into lifetime income without paying capital gains tax when the asset is sold. It reduces your income taxes now and reduces estate taxes when you die. And it lets you help a charity that has special meaning to you.

First, you transfer an appreciated asset into an Irrevocable Trust. This removes it from your estate, so when you die, no estate taxes will be due on it. The trustee then sells the asset at full market value, paying no capital gains tax, and re-invests the proceeds in other income-producing assets. For the rest of your life, the trust pays you income. When you die, the remaining trust assets go to the charities you have chosen, which is the reason it's known as a Charitable Remainder Trust.

One of the questions raised by this is why not sell the asset yourself and re-invest the proceeds outside such a trust? While doing so is an option, you would pay more in taxes and there would be less after tax income for you.