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Charitable Remainder Trust and its Tax Advantages

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Charitable Remainder Trust and its Tax Advantages

The world is becoming a better place with the introduction of more and more charitable and non governmental organizations that aim to fulfill the dreams of those who are less fortunate. And if you have a common feeling of donating to a charitable cause while keeping yourself financially stable for your future, what else would be better than investing in a charitable remainder trust?

A charitable remainder trust brings a lot of goodness with it, such as the fact that it not only supports your chosen charity but also brings a host of tax benefits that let you enjoy an income that is partially exempt from tax deductions. To understand what these are, you must keep reading!

What are the Tax Advantages Associated with CRTs?

You can leverage the following list of key tax advantages that are associated with CRTs:

  • Immediate Income Tax Deduction: 

As per the CRT agreement, when you choose a reputable charity organization to receive your assets, you are then entitled to receive a charitable income tax deduction that is equivalent to the current value of the remainder interest that is assigned to the charity foundation. With all this information, the IRS then uses a formula that will determine the approximate amount of tax deduction. This formula includes CRT types, the payout rate, and current federal interest rates. 

  • Tax-Deferred Growth within the Trust:

All those assets that have been used within a CRT are known to experience tax-deferred growth. And these assets, unless sold, capital gains taxes are not triggered on any of their appreciation value.

This will eventually allow your assets to increase their FMV value without you having to worry about incurring unwanted tax limitations. Other than this, you might be receiving some of the income as a return of principal, which might be tax-free too. 

  • Reduced Taxable Income: 

There are different types of assets that you transfer to the CRT; depending upon their types, you might be receiving some distributions. A part of this distribution might be taxable, whereas a part of it is non-taxable. This non-taxable income will eventually lower your income tax slab, allowing you to put less money in taxes. 

  • Potential Bypass of Estate Taxes:

The assets that you have decided to transfer to the CRT do not remain a part of your taxable estate. By removing these estate values from your annual tax returns, your owned estate value is reduced, which in turn results in minimizing your annual tax liabilities.

Bottom Line:

CRTs have been considered ideal trust options when it comes to tax minimization and financial security. These do make a meaningful contribution for both parties, i.e., you and the designated charity, if strategically implemented. In order to understand the strategic tax implications and to gain benefits from CRTs, you must consider seeking assistance from a tax advisor like and pave the way for a more fulfilling and tax-efficient future!

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