The Win-Win Trust

Written By:

Riley Carbone Kern

|

April 16, 2021

My son, Bruno, hates nothing more than having to choose between two things he wants. Whenever he can, even when it's impractical, he chooses "both." Do you want pancakes or french toast for breakfast? BOTH! Do you want to wear shorts or jeans? BOTH! Do you want to dance or snuggle? BOTH!

Life doesn't often give us the chance to have both things we want, but sometimes it does. Sometimes life offers up a Win-Win. Most people want to be generous with their resources and want to avoid paying taxes. Turns out, our tax code is written to encourage just such a Win-Win. While there are many great ways to give to your favorite charity or cause and reducing your tax liability, one fantastic and underutilized tool is the Charitable Remainder Trust. Or, as we like to call it, the Win-Win Trust.

What is a Charitable Remainder Trust?

In its simplest form, a Charitable Remainder Trust (CRT) is an irrevocable trust that allows assets to be distributed to the donor or the donor's beneficiaries for a certain number of years and then distribute the remainder (which must be at least 10% of the original value) to the charity or charities of the donor's choosing. Typically, donors transfer highly appreciable assets - like stocks, the sale of a business, a real estate portfolio - to the CRT. The CRT itself is not subject to capital gains taxes, and it is exempt from paying income taxes. This allows the donor to take a charitable deduction the year of the transfer, and allows for the deferral of capital gains and income taxes over the term of the CRT.

The CRT must make an annual distribution back to the donor or the donor's beneficiaries, at which time small portions of the value are reported as income or capital gains on the recipient's personal tax return. At the end of the CRT term, the remainder is distributed to charity.

You get to be generous AND reduce your taxes. It's a Win-Win.

Why Should You Create a Win-Win Trust Now?

Many changes in our tax laws are on the horizon. One of the most significant is the introduction of the STEP Act (discussed HERE), which drastically changes how capital gains taxes are calculated and when they are imposed. As the STEP Act is currently drafted, there is an exception for transfers to charity or charitable trusts. Charitable transfers will still receive preferential capital gains treatment, meaning that CRTs will become an even more meaningful way to provide for charities but also hold or transfer assets with as much tax efficiency as possible.

If you anticipate realizing a capital gain on an appreciable asset soon - the sale of a business or transfer of real property or liquidating a significant amount of stock - you should discuss creating a CRT with your attorney, CPA, and financial advisor.

Here's the stuff we always put at the end: If you want to know more, we would love to talk with you. Best part, the conversation about how it could benefit you doesn't cost anything. If you're in the Tulsa area, call us at (918) 770-8940, send an email to firm@tallgrassestateplanning.com, or click HERE to schedule a free consultation with a Tallgrass attorney. If you're in the Oklahoma City area, call (405) 358-3548 or send an email to howdy@tallgrassestateplanning.com.

Disclaimer: Reading this blog post does not create an attorney-client relationship, and it is not formal legal advice. This is for information purposes only. It is always best to speak with an attorney about your questions, assets, concerns, and needs.

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