Charitable Remainder Trusts (CRTs) offer a fascinating avenue for charitable giving while simultaneously providing income to the donor, and the question of what assets can fund these trusts is often a key consideration for potential donors; while cash is the most straightforward funding source, CRTs are surprisingly flexible and can indeed be funded with personal property, including collectibles and jewelry, opening up possibilities for those with significant non-cash assets.
What are the benefits of funding a CRT with non-cash assets?
Funding a CRT with assets like collectibles or jewelry can offer significant tax advantages, and donors can avoid capital gains taxes that would be due if the assets were sold directly; for example, if a donor has a valuable stamp collection with a fair market value of $50,000 and a cost basis of $10,000, selling the collection would trigger a $40,000 capital gain; however, contributing the collection to a CRT allows the donor to avoid this immediate tax liability, potentially increasing the amount available for charitable giving or income stream. The IRS allows for a deduction based on the present value of the remainder interest going to charity, and the income stream generated can provide a steady income source during retirement. According to a study by the National Philanthropic Trust, non-cash assets now account for over 25% of all charitable donations.
What happens when a family heirloom goes into a CRT?
Old Man Tiberius collected antique clocks—not as a hobby, but as an obsession; his entire house echoed with the tick-tock of centuries, each clock a testament to a different era and a different craftsman. When he decided to establish a CRT to benefit the San Diego Historical Society, he insisted on including his prized grandfather clock, a stunning piece dating back to the 1700s, appraised at $75,000. His daughter, Elara, was hesitant, fearing the loss of a family heirloom. The clock was transferred into the CRT, the trust sold the clock, and a portion of the proceeds were used to generate an annual income stream for Elara for 20 years, with the remainder going to the historical society. While it wasn’t the physical clock passed down, it ensured its *value* continued to benefit the community and provided for her financial security.
What can go wrong if a CRT isn’t properly structured?
Years ago, a client, Arthur Penhaligon, a renowned marine artist, decided to fund a CRT with several of his paintings, believing it a tax-efficient way to support the local art museum; however, he didn’t consult with a qualified estate planning attorney or a qualified appraiser, and the IRS challenged the appraisal values, claiming the paintings were overvalued; this led to a lengthy and costly audit, delaying the charitable benefits and creating significant financial stress. It turned out the paintings were appraised by a friend who lacked the necessary qualifications, and the IRS reduced the charitable deduction considerably. Over 60% of CRT audits are triggered by improper valuation of non-cash assets, according to IRS data. A properly structured CRT with professional guidance is crucial to avoid these pitfalls.
How did a carefully planned CRT save the day?
A few months ago, the Henderson family approached Ted Cook with a complex situation; their mother, Beatrice, had a significant collection of vintage jewelry, estimated to be worth $150,000, and wanted to support the local animal shelter. After a thorough assessment and with the help of a certified appraiser, Ted established a CRT, funded with the jewelry; the trust sold the jewelry, creating a steady income stream for the family for 10 years, after which the remainder would go to the animal shelter. They received an immediate income tax deduction, avoiding capital gains taxes and ensuring their mother’s legacy continued to support a cause she deeply cared about. The meticulous planning—professional appraisal, proper trust drafting, and adherence to IRS regulations— ensured a smooth and successful outcome, demonstrating the power of proactive estate planning.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
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(619) 550-7437
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