You could be someone who is respectful of, or has a passion for a particular non-profit organization or charity. Perhaps you donate regularly to this organization, understanding that the money you give can do anything from improving survival rates of diseases, to providing clean drinking water to third-world countries, to supporting homeless animals at the local shelter.
And, if you are a real estate owner, you could provide even more financial assistance to that favored charity or organization, without the burden of capital gain taxes. Sound too good to be true? It is true, and it can be done through a charitable remainder unitrust, or CRUT. A CRUT is a tax-exempt, irrevocable trust that takes ownership of your asset, distributes any income to your charity of choice and beneficiaries, then sells the asset when the trust’s term ends, or you die.
The beauty of the CRUT is that you designate a trustee to manage those fund distributions. If you name your favorite charity as trustee, the organization has the potential to receive a steady flow of income, can sell the asset upon the trust’s term, and not have to pay taxes on any profit gain.
Your estate doesn’t have to pay taxes on the asset’s sale, either, because your estate doesn’t own it. Basically, if you own highly appreciated assets, and want to donate resources to a worth cause, and not want to generate all kinds of capital gains taxes, the CRUT could provide a logical solution.
We’ve pointed out in the past that gifting real estate assets to a charity can sometimes be an issue. As such, it’s a good idea to reach out to the target organization (as well as your financial planner) before deciding to form a CRUT. Still, there are many advantages to forming a CRUT, as follows:1,2
As with any investment, there are a handful if issues to consider before forming a CRUT:
In short, CRUTs do come with their fair share of caveats. But they also could allow you to do something nice for a favored charity or organization, without much of a tax burden.
At Realized, we make it our goal to educate investors on the many tax-friendly tools and investments granted to them by the IRS. Although we do not provide tax advice, we stand ready to assist you with any of the questions you may have. Call us at (877) 797-1031 to learn more about how we can help you manage the taxes in your estate.