Charitable Remainder Trust
An Attractive Tax Saving Strategy for Real-Estate Investors
The Charitable Remainder Trust (CRT) is a technique we use with our high-net-worth clients. This technique is used to avoid increasingly high capital gains taxes on appreciated property they plan on selling. This includes their primary residence.
Setting-up and donating property to a CRT allows for the avoidance of state and federal capital gains taxes at the time of sale on the donated property.
Subsequently, the cash received into the trust at the time of sale is invested and the distributions from the CRT to the donor and his/her spouse are for life.
In addition to the income, there are additional tax benefits in the form of tax deductions against ordinary income. A properly structured CRT strategy can result in a tax neutral sale.
The Way It Works
Before signing a contract of sale you must bifurcate the Deed. Bifurcation refers to the splitting of the Deed so you can contribute a predefined portion of the Deed into the CRT.
For example, 50% ownership of the home can be contributed to the trust, when sold the trust will generate the income for life. The balance of the proceeds will be received personally; those proceeds can be reinvested for income or for other property.
The diagram below gives you a clear illustration on how this transaction can be accomplished.