Charitable Remainder Trust Planning

What Is a Charitable Remainder Trust?

Wealthy Florida property owners face a brutal tax dilemma. If they sell a massively appreciated commercial building outright, they owe an enormous federal capital gains tax. If they simply donate the building to charity, they lose all income from the property. A Charitable Remainder Trust (CRT) solves both problems simultaneously.

Here is how it works: The property owner transfers the building into an irrevocable trust. The trust sells the building at full market value. Because the trust is a tax-exempt charitable entity, it pays zero capital gains tax on the sale. The full, untaxed proceeds are then reinvested, and the trust pays the original owner a fixed annual income for the rest of their life. When the owner eventually dies, whatever money remains in the trust is donated to the designated charity.

The Tax Benefits

A properly structured CRT provides three distinct tax advantages:

1. Immediate Income Tax Deduction — The year the property is transferred into the CRT, the owner receives a massive charitable income tax deduction based on the present value of the future gift to charity.
2. Capital Gains Tax Elimination — The trust, not the owner, sells the property. Because the trust is a tax-exempt entity, the sale generates zero capital gains tax, preserving 100% of the proceeds for reinvestment.
3. Estate Tax Reduction — Because the property is permanently removed from the owner's estate, it is not subject to the federal Estate Tax when they die.

Two Types of CRTs

• Charitable Remainder Annuity Trust (CRAT) — Pays the owner a fixed dollar amount every year, regardless of trust performance. More predictable but riskier if investments underperform.
• Charitable Remainder Unitrust (CRUT) — Pays the owner a fixed percentage of the trust's value each year. The income fluctuates based on investment returns, but typically grows over time.

Related Terms

• Estate Tax — The federal tax significantly reduced by removing assets from the estate
• Living Trust — A revocable trust that does not provide these tax benefits
• Credit Shelter Trust — Another estate planning vehicle used alongside CRTs

Barnes Walker Estate Planning

Barnes Walker's elite estate planning attorneys structure Charitable Remainder Trusts for high-net-worth Florida clients, seamlessly converting massively appreciated commercial real estate into lifetime income streams while eliminating catastrophic capital gains and estate tax exposure. Request a legal inquiry for assistance.

Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC