Charitable Remainder Trusts (CRTs) are powerful estate planning tools, but their tax treatment upon the grantor’s death can be complex, particularly regarding the step-up in basis. While the assets *within* the CRT do not receive a step-up in basis, the *remainder interest* passing to the designated charity *does* receive a step-up in value, offering a significant tax benefit. This distinction is crucial for understanding the overall estate tax implications of using a CRT. The IRS allows for a deduction for the present value of the remainder interest when the trust is established, reducing the grantor’s taxable estate, and the subsequent appreciation of those assets is generally not subject to estate tax because it ultimately benefits a qualified charity. Approximately 60% of high-net-worth individuals utilize charitable giving strategies as part of their estate plans, demonstrating the popularity and effectiveness of instruments like CRTs.
What happens to the assets *inside* a CRT when the grantor dies?
When a grantor of a CRT passes away, the assets held within the trust do *not* receive a step-up in basis. This is because the grantor has already relinquished ownership of those assets. The assets remain within the trust and continue to be managed according to the trust’s terms, providing income to the designated beneficiary (or beneficiaries) for a specified period or lifetime. However, the income generated by those assets is still taxable to the beneficiary. This differs significantly from assets held directly by the grantor, which would typically receive a step-up in basis to their fair market value on the date of death, potentially eliminating capital gains tax on future sales. “The key is understanding that the benefit isn’t a step-up in basis of the assets themselves, but a reduction in the taxable estate through the charitable deduction,” explains Steve Bliss, an Estate Planning Attorney in Wildomar.
How does the charitable remainder benefit from a step-up in value?
The significant tax advantage of a CRT comes from the step-up in value of the *remainder interest* that passes to the designated charity. This means that when the trust terminates and the remaining assets are distributed to the charity, those assets are valued at their then-current fair market value. This valuation is deductible from the grantor’s gross estate, effectively reducing the estate tax liability. This is particularly beneficial when the assets within the CRT have appreciated substantially during the grantor’s lifetime. Consider a scenario where a grantor contributes highly appreciated stock worth $100,000 to a CRT. If, at the time of the grantor’s death, those assets have grown to $300,000, the charity receives assets worth $300,000, and that amount is deducted from the taxable estate. In 2022, charitable bequests accounted for 12.3% of total estate tax returns, indicating the substantial impact of charitable planning on estate tax reduction.
I knew a man named Arthur who didn’t plan ahead…
I remember Arthur, a successful businessman who always believed he had plenty of time to handle his estate planning. He contributed appreciated stock to a CRT late in life, intending to benefit his favorite local museum. Unfortunately, he hadn’t properly coordinated the CRT with his overall estate plan. When he passed, the lack of integration created significant complications and unexpected taxes. Because the CRT wasn’t structured with his estate tax goals in mind, the benefits were less impactful than anticipated. It turned out a substantial portion of the CRT’s value was still subject to estate tax, and his family struggled to cover the unexpected expense, leaving them frustrated and disappointed. He should have consulted with Steve Bliss earlier.
But then there was Eleanor, who got it right…
Eleanor, a retired teacher, approached Steve Bliss years before her passing. She meticulously planned her estate, including a CRT designed to benefit a scholarship fund at her alma mater. She understood the importance of coordinating the CRT with her overall estate plan, ensuring that the charitable remainder interest received a step-up in value. When she passed away, her estate was handled smoothly and efficiently, minimizing taxes and maximizing the benefit to the scholarship fund. Her family was grateful for her foresight, and the scholarship fund continues to thrive, supporting generations of students. Steve Bliss expertly guided her through the complexities, providing peace of mind and a lasting legacy. “Proper planning with a CRT is about more than just reducing taxes; it’s about achieving your charitable goals and leaving a meaningful impact,” Steve Bliss often advises his clients.
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About Steve Bliss at Wildomar Probate Law:
“Wildomar 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 Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
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
living trust
revocable living trust
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estate planning attorney near me
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/RdhPJGDcMru5uP7K7
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
(951)412-2800/address>
Feel free to ask Attorney Steve Bliss about: “Can life insurance be part of my estate plan?” Or “What documents are needed to start probate?” or “Can I be the trustee of my own living trust? and even: “What is a bankruptcy trustee and what do they do?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.