Charitable Trust Home Ownership

Charitable Trust Home Ownership


                You’ve probably heard that the rich and famous often employ special trusts to buy, hold and own their real estate properties.  The Charitable trust strategy is, in our opinion underutilized except in the priciest coastal, resort and international markets.  There exists few better pure time tested tax shelters and asset protection devices than the Charitable Remainder Unitrust (or CRUT); if the owner’s wish is for a charity (s) to become the eventual owner post death.  There are even ways to pass your real estate (including your primary and secondary residences) through your CRUT to your own private foundation- Thereby creating even greater- next gen heir flexibility and tax shelter/ deferral.

                For our purposes here, we will focus upon the single event of CRUT ownership.  As with all trusts, three main parties must manifest: grantor, beneficiary, trustee.  In this case the grantor is you, the home/ property owner.  There are at least two levels of beneficiary within a Real Estate CRUT.  1) The “income” or current affairs beneficiary.  The trustee can be you (one or both spouses) or you and a “corporate trustee” as co-trustees, which is our recommendation.  Your lawyer drafts the trust document (indenture) to perfectly match your planning/ charitable objectives in synch with your income, gift, capital gain and estate tax goals.  Here’s how it works: Steps. 1) Document is drafted 2) Fed ID # applied for 3) Trustee, grantor and beneficiary (s) are selected 4)property title is transferred (deed of trust) to the CRUT “The Robinson Family Charitable Trust” for example.  The trustee now “owns” the property title (s).  This transfer causes and immediate tax deduction; a percentage calculated based upon the grantor’s age and mortality expectancy (Older = higher deductions).  Let’s say a 50 year old grantor with a 30 year life expectancy (mortality) contributes a $1 mm home with a $500k net equity, naming United Way (for example) as The Qualified 501 © (3) public charity “remainderman” (The “R” in CRUT).  The IRS chart depicts a .145 deduction factor[1] or $72,500.  Our client may take a one time Federal income tax deduction (one or more years) as long as $72,500 does not exceed 35% of his/ her adjusted gross income.  Since the home passes to the charity upon the second spouse’s death, there is no gift or estate taxes.  Not a bad deal all around, especially if your really want to make a large donation to charity and need a sizable tax write-off.  

                The CRUT story gets better.  If you contribute income producing property (even the portion of your home business), you keep all of the current income and all of the income tax and capital gains tax benefits. Now, do the math.  What about the inverse? If you want to keep the property (s) in your estate but don’t need the current income, you can simply create a charitable lead trust which simply means that your charity (s) receive  the income during life, yet the asset (property(s)) pass to your heirs as your will or trust directs.

                AHB enjoys solid relationships with financial advisors as part of our team.  Let  us know if we can assist with your charitable trust planning endeavors.


[1] approximate


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