Understanding Charitable Remainder Trusts
How to Secure a Lifetime Income, Save Taxes & Benefit a Charity
4. What happens if they use a CRT?
If they transfer the stock to a CRT instead, the Brodys can take an immediate charitable income tax deduction of $121,712. Because they are in a 35% tax bracket, this will reduce their current federal income taxes by $42,599.
The trustee will sell the stock for the same amount, but because the trust is exempt from capital gains tax, the full $500,000 is available to re-invest. The same 6% return will produce $30,000 in annual income which, before taxes, will total $780,000 over their lifetimes. That's $93,600 more in income than if the Brodys had sold the stock themselves. And because the assets are in an irrevocable trust, they are protected from creditors.