The Carpenters had already sold a
vacation home in the northern California mountains to prepare for their move to
a life-care community that will provide access to support services as they age.
They were not eager to tackle the sale of their main residence in Los Altos,
near the Stanford University campus. “Selling a home is an incredible amount of
trouble, especially in California where there are disclosures and a lot of
paperwork, plus you have to arrange your furnishings like a stage set to attract
buyers,” Betsy says. “We just couldn’t face it.”
Instead, the pair opted to
use their home to benefit their favorite cause. The Nature Conservancy set up a
CRT according to the Carpenters’ specifications and handled all the work of
transforming the house into cash.A CRT, which allows the giver to generate
income from a property as well as to make a charitable donation, can be an
attractive way to give when a donor is planning retirement, a prime time for
contemplating both residential transitions and charitable ambitions, or simply
when a portfolio has become too heavy with real estate. Income from a CRT can
continue for a set period (though no more than 20 years, or for a beneficiary’s
lifetime); what remains in the trust after payments to the beneficiary end goes
to the designated charity. Anyone can be named as income beneficiaries of a CRT,
including children or employees or the trustees themselves, and nearly any
tax-exempt organization can be named as recipient of the remainder interest,
with a few strictures. The charitable tax deduction can be taken immediately and
is calculated on the present, not the appreciated, value of the expected
charitable remainder.
As with an outright gift, capital gains tax does not
in any way reduce the value of the donated asset, so CRTs can be a highly
tax-efficient way to rebalance a portfolio. Income payments are based on the
proceeds of the sale of the donated property, plus actuarial and investment
assumptions. The portion of trust assets disbursed to the income beneficiary is
discretionary, within regulatory limits, but the greater the anticipated payout,
the smaller the charitable remainder and, thus, the charitable tax
deduction.
The trust can pay either a fixed percentage of its current assets,
reset each year, or a fixed dollar amount. Payments based on a fixed percentage
of assets factor in future appreciation, so this approach can offer a hedge
against inflation. Fixed-dollar payments offer, at least in theory, a stable
income, although if investment returns are inadequate to support the fixed
amount, the trust can conceivably run out of money.
|
