If you would like to avoid capital gains taxes on highly appreciated assets like stocks, property or business interests, unlock the equity for lifetime income and leave money to your favorite charity, the use of a Charitable Remainder Income Trust (CRIT) could play a significant role in your estate planning.


Let's assume that you currently own several hundred shares of a particular stock, which you bought several years ago at a very low cost basis.

You feel it's time to unlock and enjoy some of that equity, but if you sold the stock today you would realize a large capital gains tax wiping out 20-30% of the value.

By setting up a Charitable Remainder Income Trust (CRIT), you can avoid that capital gains tax bill and receive an income tax deduction equal to 10%-30% of the amount donated, depending on your age and desired income level.

There are two methods by which you can receive income from your CRIT; the Charitable Remainder Unit Trust (CRUT) income election allows the donor(s) to participate in the unit value of the underlying investment and the Charitable Remainder Annuity Trust (CRAT) which offers a fixed income level for life.

Don't Disinherit your Heirs

It is important to keep in mind, that under most situations at the death of the donor(s), the income will cease and the "remainderman" (balance of the trust assets) will then transfer to your designated charity(ies) of choice, and not necessarily your personal beneficiaries or children.

To avoid this potential pitfall, many estate owners will concurrently establish an Irrevocable Trust funded with a first or second-to-die insurance policy, which is equal to the value of the asset(s) transferred to the CRIT.

At your death, they will inherit an amount equal to the amount donated to the trust 100% income and estate tax free.

To illustrate, Mr. & Mrs. Estate Owner plan to sell a highly appreciated plot of raw land with a fair market value of $750,000. They have decided to use a 10% CRAT which will generate $75,000 per year income for life.

Assuming the CRIT generated 10% in annual earnings, the value of the trust at death will still be $750,000.

To avoid disinheriting their children they created an Irrevocable Insurance Trust funded with a $750,000 Survivorship Life insurance policy.

What's worth noting here is that in most cases, the income tax deduction alone will serve to offset the cost of funding the replacement asset (insurance policy) for the benefit of your children and grandchildren.

At death, $750,000 is paid to the charity to further its cause while another $750,000 is paid to the children both income and estate tax free.

What have Mr. & Mrs. Estate Owner accomplished?

  • They avoided capital gains taxes on their highly appreciated assets.

  • They received a substantial income tax deduction, which they can use over several years.

  • They removed the asset from their taxable estate (negating potential estate tax liability).

  • They increased their annual income by $75,000 per year.

  • They unlocked the equity from a non-incoming producing asset.

  • Replaced an equal amount to the children 100% income and estate tax free.

A Potential 'Win-Win' Situation

As in all investment and/or estate planning strategies, suitability requirements apply and each situation must be examined thoroughly before a recommendation can be made.

Action To Take

Click HERE to obtain Irrevocable Insurance Trust information

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Copyright 1998 Fielder Financial Management, LTD.
All Rights Reserved.

Securities offered through Fortune Financial Services, Inc. member FINRA, SIPC.  Fielder Financial Management, Ltd. not affiliated with Fortune Financial Services, Inc.  Mark Fielder, Financial Professional, CA. Insurance Lic. # 0690576.