Yes, a charitable remainder trust (CRT) can indeed be funded through a charitable installment sale, offering a sophisticated estate planning strategy for those looking to maximize tax benefits while supporting their chosen charities. This involves selling an asset – often appreciated stock or real estate – to a charity at a predetermined price, with the charity paying for it in installments over a period of years. The donor receives an immediate income tax deduction for the present value of the remainder interest that will eventually benefit the charity, and avoids capital gains taxes on the appreciated asset. This strategy is particularly attractive for individuals with highly appreciated assets and a desire to create a long-term income stream for themselves or their beneficiaries before the asset ultimately goes to charity.
What are the tax benefits of a charitable installment sale?
The tax advantages are significant, but also complex. A charitable installment sale allows donors to deduct the present value of the remainder interest – the portion of the asset the charity will eventually receive – in the year of the sale. This deduction is limited to 30% of the donor’s adjusted gross income (AGI) for income-producing property and 30% of AGI for capital gain property, with any excess carried forward for up to five years. Crucially, the sale avoids immediate capital gains taxes that would otherwise be due when an appreciated asset is sold. According to recent IRS data, approximately 15% of charitable donations exceeding $10,000 involve appreciated assets, highlighting the popularity of this method. Moreover, the installment payments received by the donor are typically treated as capital gains, potentially benefiting from lower tax rates than ordinary income.
How does a CRT fit into the installment sale structure?
The CRT acts as a conduit for the installment sale. Instead of the charity receiving the asset directly, the donor transfers it to an irrevocable CRT. The CRT then sells the asset to the charity under the installment sale agreement. This structure provides several advantages, including the ability to spread out the income tax liability over the trust’s term, potentially minimizing the impact on the donor’s current tax bracket. The CRT can also provide a lifetime income stream for the donor or other beneficiaries, paid from the installment payments received. It is critical, however, to ensure the CRT is properly drafted to comply with IRS regulations regarding charitable remainder trusts, specifically Section 664 of the Internal Revenue Code. A failure to do so could result in the disallowance of the charitable deduction and potential tax penalties.
What happened when Mr. Henderson didn’t plan properly?
Old Man Henderson was a successful local developer, and he owned a substantial amount of land that had dramatically increased in value over the years. He wanted to donate a portion of it to the local hospital, but instead of consulting with an estate planning attorney, he simply transferred the deed to the hospital, hoping for a large tax deduction. The hospital, unprepared to handle the property, quickly found themselves burdened with maintenance costs and property taxes. More importantly, the IRS determined that the transfer didn’t qualify as a charitable deduction because it wasn’t structured as a qualified charitable transfer. Henderson ended up owing significant back taxes and penalties, plus legal fees trying to rectify the situation. He wished he had sought professional advice before rushing into such a significant decision. It was a costly lesson in the importance of proper planning.
How did the Millers get it right with a CRT and installment sale?
The Millers, long-time residents of Escondido, owned a sizable portfolio of stock that had appreciated significantly over decades. They wanted to leave a legacy to their favorite animal shelter, but also wanted to ensure they had sufficient income to live comfortably in retirement. We advised them to establish a CRT and fund it through a charitable installment sale. We structured the sale to spread the tax benefits over several years, aligning with their income needs. The animal shelter received the stock, and the CRT made regular installment payments to the Millers for their lifetime, providing a reliable income stream. Upon their passing, the remaining assets in the CRT went to the animal shelter, fulfilling their philanthropic goals. The Millers were thrilled with the outcome, knowing their legacy would continue and their financial future was secure, all thanks to careful planning and a well-executed CRT and installment sale.
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
- estate planning
- bankruptcy attorney
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Map To Steve Bliss Law in Temecula:
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “How do I protect my family home in my estate plan?” Or “What are letters testamentary and why are they important?” or “What should I do with my original trust documents? and even: “Can creditors still contact me after I file for bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.