Is A Connecticut Charitable Remainder Trust Right For Your Family?

Anita and Matthew are discussing the possibility of forming a revocable trust due to its tax shelter benefits. They know that an irrevocable trust is not the best option because they are still working and need access to funds once they reach retirement. However, a family friend has also mentioned the possibility of a charitable remainder trust. The friend indicated that a Charitable Remainder Trust (CRT) gives the settlor (person making the trust) autonomy over the contents and can be changed but offers additional benefits that a basic revocable trust cannot. What are the benefits of a charitable remainder trust? 

What is a Charitable Remainder Trust?

A charitable remainder trust is a mechanism the settlor contributes to that does three things. First, it is tax-incentive to the settlor as a charitable gift, second it provides income to the settlor and beneficiaries, and finally, the remainder in the trust after distributions are made can be designated to a specified charity. A charitable remainder trust is a method for obtaining tax reductions or tax credits on a charitable donation to be made in the future. While the trust is an existence, the settlor or a beneficiary the settlor designates has an income stream to rely upon. If designed properly, a charitable remainder trust can be relied on for income purposes for a lifetime and is also an excellent legacy planning tool.

It offers tax benefits because in Connecticut, property donated out of the trust during the settlor’s lifetime is not subject to a capital gains tax. The settlor or designated beneficiary may also claim the donation (charitable remainder) as a deduction on state and federal income taxes for that calendar year. If a charitable remainder trust is tied to a grantor’s last will and testament as opposed to a freestanding CRT, the assets held in the trust are not calculated as part of the taxes due on the estate. CRTs are often beneficial for large estates and families with substantial wealth who want to avoid paying Connecticut estate taxes while also seeking philanthropic opportunities to benefit the local community.

What about Real Estate Transfers? 

A settlor can transfer real estate and real property to a charitable remainder trust, even if it is not her primary residence. This includes rental properties and vacation homes. A real estate transfer made from the settlor to the trust is not complete without a deed indicating that property is donated from the property owner/settlor for the benefit of the trust. There are property tax implications in conducting a real estate transfer. In addition, if the property owner secured a first or second mortgage on the property, they must consult with the lender prior to initiating a transfer. The benefit of placing real estate in a charitable remainder trust is that the settlor retains ownership and control over the property. 

Call Canton Trusts & Estates Attorney Brian S. Karpe

Whether you already have a trust established and need revisions or are just starting to investigate estate planning and life’s events document options for your family, it is always wise to consult an experienced trusts and estates attorney. Attorney Brian S. Karpe is a seasoned Canton estate planning attorney with an LLM (a master of law’s degree) in estate planning, and more than three decades of experience helping clients throughout Canton and Central Connecticut. Call today to schedule a comprehensive consultation.