Ira Stretch Charitable Remainder Trust
A Charitable Remainder Trust (CRT) offers the perfect blend of giving and receiving. You receive regular income from your trust—either a fixed percentage or amount—during your lifetime or up to 20 years. Then, once the term ends, the remaining assets go to the charity of your choice, creating a lasting legacy.
CRTs are Used for Appreciated Assets and can Help You Save on:
Capital Gains Tax | Net Investment | Incom Tax | State Income Tax | Depreciation Recapture | Stretch an IRA
About IRA Stretch CRTs
Advantages
Considerations
Advantages
1. Assets grow tax-free compounding in the Charitable Remainder Trust, similar to how assets grow in an IRA
- Grow asset tax-free compounding for a longer time horizon
2. Force kids to Stretch payments
- For their lifetime, term of years (up to 20 years), or lifetime and term of years
- Current IRA Law states that (non-spousal) heirs can take the proceeds in year one or stretch distributions over ten years
- How much is too much to leave to an heir?
3. IRA assets are outside of the estate
- IRA do not qualify for the Estate Tax Exemption and do not get a step up in basis
- Avoids double taxation (Income in Respect to Decedent Tax (IRD) and Estate Tax)
- IRD rates are at the beneficiary’s Income Tax Rate
- Estate taxes are currently 40% on assets above the Estate Tax Exemption
4. The IRA Stretch Charitable Remainder Trust provides asset protection
- Including protection from creditors and divorce
5. The Charitable Remainder Beneficiary can be your own family-advised Fund
- Forced philanthropy and essential values from the grave
- Keep the family legacy for generations
Features
Considerations
Advantages
1. Can be based on life expectancy or term of years or both
- Life expectancy works excellent if the donor plans to live long
- The term of years is maxed at 20 years
- Life expectancies and a term of years can be used if the calculation deems that 10% will benefit charity as a remainder beneficiary.
2. The amount of lifetime income (at least 5%) must leave at least a 10% remainder to charity
3. Income tax deduction depends on how much will go to charity (or DAF)
- Impacted by the length of the Trust, how much income the donor takes, and the rates when the trusTrustset up
4. Works best in higher interest-rate environments and uses the AFR 7520 Rate
5. A Net Income Makeup or FLIP provision can be used to defer income until a later time
6. If the CRT is created as a Unitrust, assets can be added to the Trust
7. Has a 30% Adjusted Gross Income (AGI) Limitation
- The deduction can be used in the year of the gift and five years after
Considerations
Considerations
Considerations
1. A CRT are Irrevocable Trusts
2. The initial language of the Trust will dictate the Trust for its life
- Language can be added to the Trust for some flexibility
3. There are legal costs to setting up a CRT
4. It is essential to understand the Trust and to have it be part of an arching Estate Plan
5. The CRT will have its own Tax Identification Number and be responsible for filing taxes each year
6. There is a cost to filing taxes
7. A Trust Administrator can be hired to ensure the integrity of the Trust and file the tax returns
8. The Trust can pay tax filing, administrative, and other fees.
IRA Stretch CRT Graphics
Disclosure
Mrs. House does not offer tax or legal advice; nothing in this presentation should be construed as such. Donors should consult with their qualified financial, tax, and legal advisors before undertaking any tax planning or legal strategies discussed herein.
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