When to Consider a Charitable Remainder Annuity Trust

I was sitting down the other day with one of my favorite clients, Mary. You will never meet someone as sweet and generous as Mary; nor as sharp and spunky. Mary is a pistol! She is having a harder time getting around now, but she isn’t letting age get the better of her.

She wanted to talk to me about making some changes. Her kids and grandkids are grown and successful in their own right. She still wants to leave them something, but no longer is concerned with them getting everything. She has been blessed and she wants to return that blessing!

She wants to leave a portion of her money to an order of nuns that is near and dear to her heart for the work that they do. I thought this idea was admirable and completely in alignment with her values.  

She brought in a brochure about purchasing a charitable remainder annuity to benefit the sisters and wanted to get started in transferring some of the assets. Here is where we need to slow down a bit. Charitable Remainder Annuity Trusts (CRATs) are a great vehicle for gifting assets. The charity wins by getting assets. You win by getting income. But they are not necessarily right for everybody.

Generally speaking, people who benefit will be those who want to donate appreciated stock positions, real estate, or other assets that it would be wise to diversify out of due to the trust liquidating the asset and not you, thereby you get to avoid the capital gains. Then you can draw your income off it until you die (or the time runs out on the trust agreement) and the charity can keep the remainder of the funds left. Also, you can get an income tax deduction and potentially lower or eliminate your estate tax liability.

In Mary’s case, none of these benefits really applied. She was going to donate a portion of a retirement account so there would be no avoidance of capital gains. She could get an income tax deduction, but that was not a prime motivator for her and her tax bracket is relatively low to start with. And her overall estate was not large enough to be concerned with estate taxes. Since she was already drawing income off of her retirement account and she was not going to have any substantial benefit from purchasing one of the annuities being advertised in the brochure, I recommended that we amend her beneficiaries on her accounts to include the sisters. In this way, she knew that she could be blessing the work of the sisters just as she had been blessed!

Disclosure:

Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through PFG Advisors. TruWest Wealth Management Services, TruWest® Credit Union, Securities America, and PFG Advisors are separate entities. Securities, insurance, and advisory offered through Securities America, PFG Advisors or their affiliates are:

• Not NCUA Insured
• No Credit Union Guarantee
• Not Credit Union Deposits or Obligations
• May Lose Value