Every family situation is different, which is why it is a good idea to determine what estate planning strategy makes the most sense for your financial priorities today and your goals for tomorrow.
One strategy to consider is a charitable remainder annuity trust. A charitable remainder annuity trust (CRAT) allows the owner to create a trust that generates income until the beneficiary dies or for a set term, with the remainder of the assets transferred to charity.
These trusts are popular because the grantor receives tax benefits after creating the trust. These benefits include up-front charitable deductions for the present value of the remainder that is donated. Delayed capital gains taxes while still generating income is another tax-saving advantage.
With a CRAT, the grantor or the grantor’s chosen beneficiary receives a fixed amount or percentage (at least 5% annually) of the trust’s assets periodically. CRATs cannot be changed by the grantor, even to add more assets to the trust. The trust takes the donor’s tax basis in the assets. The IRS recently determined that the assets in these types of trusts do not get a stepped-up basis to fair market value when the grantor dies. Instead, the tax basis of the assets after the grantor’s death is the same as that before death.
Another advantage to a CRAT in the current climate of rising interest rates is that higher interest rates increase the value of the donated assets and the up-front deduction since it’s based on the present value of the remainder.
It is very important to have estate planning in place and the CRAT may be used as a part of your estate planning. Your tax advisor and our partners with Antares Wealth Management are available anytime if you have any questions or would like more information.
Tamra Newman, CPA, CVA, is a Senior Tax Manager with Antares Group. She can be reached at firstname.lastname@example.org.