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Reducing Taxes with Charitable Remainder Trusts

A Charitable Remainder Trust allows you to convert an appreciated asset such as stocks or real property, into cash without having to recognize capital gains tax on the sale. The Charitable Remainder Trust also allows you to take an income tax deduction at the time of the sale, guarantees you an income stream for life and reduces estate taxes by having the asset not included in your estate upon your death. And finally, it also lets you benefit one or more charities of your choosing.

The use of a Charitable Remainder Trust is quite simple. An Irrevocable Trust naming yourself as income beneficiary and one or more qualified charities as remainderman is established. Your appreciated asset is transferred into this trust. The trustee sells the asset at current fair market value, paying no capital gains tax, and reinvests the proceeds into income producing assets. You receive the income for the remainder of your life and upon your death the remaining trust assets go to the charities. If you are concerned that your children are not receiving the benefit of the asset upon your death, you can take the income tax savings and part of the income you receive and purchase a life insurance policy in an amount equal to the value of the assets, have your children or a life insurance trust own the policy and thereby keep the proceeds out of your estate for estate tax purposes. In this manner you have not only replaced the asset for your children’s benefit but have also eliminated any estate tax on it.

A Charitable Remainder Trust allow you to secure a life time income, save taxes and benefit a charity.