What is a Charitable Remainder Trust?

What is a Charitable Remainder Trust? In this episode, Chris Berry answers the question: What is a CRT (Charitable Remainder Trust) and how does it work?

Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via this link or give our office a call at 844-885-4200.

Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

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Episode Transcript

What is a CRT and how does it work? Welcome to Berry’s Bites. Please join our host attorney and financial advisor Chris Berry.

What is a CRT? Could be a lot of things but in this situation, CRT stands for Charitable Remainder Trust and there are different types of these, but a lot of times these are used to avoid typically estate taxes they were used a lot in the past. When the estate tax exemption was much lower because it removes the IRAs by naming a charity as the remainder beneficiary you can create an income stream the IRA goes to charity so it’s removed from your estate.

It is irrevocable so you have to be careful if you’re doing a charitable remainder trust or if you’re naming a charitable remainder trust as a beneficiary of an IRA. But it is a viable way to create income that lasts longer than the 10-year stretch of the Secure Act so just kind of a little background the Secure Act passed in 2020 and the big thing that it said is that any IRAs prior to the Secure Act you could stretch out if you inherited IRA you could stretch out the payments and the tax over your lifetime. But with the Secure Act said is now if you inherit an IRA all the taxes have to be paid within 10 years.

So if you’re looking at creating a longer income stream than that, that’s where trusts can provide a role now the taxes have to be paid but with a trust you could pay the tax in the IRA but then maintain a longer income stream so if you’re just looking at kind of stretching out the payments to a beneficiary we don’t necessarily need to use a charitable remainder trust we can use any type of trust but we would just have to pay the tax within 10 years. That doesn’t mean that everything has to be distributed to the beneficiary within 10 years so again where is focusing on what is the goal then let’s figure out the strategy and then make sure to pick the right tools so charitable remainder trust might be a little bit of overkill depending on what your goals are but what a charitable remainder trust can do is it can lower your taxes for estate tax purposes and remove whether it’s IRA or highly appreciated stock from your estate. If it is highly appreciated stock I guess that’s a way we can get around kind of that basis issue as well is if you do have some low basis stocks move it into a charitable remainder trust you would receive income or a beneficiary would receive income but now that stock or that IRA at the end of the day would end up going to a charity.

So we can use different types of trusts including a charitable remainder trust as a way to stretch out payments of IRA money you just have to pay the tax or if you use a charitable remainder trust then there is no tax because now it’s going to a charity at the end of the day again if your goal is to kind of create income longer than 10 years we can really use any type of trust we would only use charitable remainder trust if there was a reason why so I’m a big fan of not over complicating things trying to keep things as simple as possible, Thank you.

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