Immediate Income Tax Deduction benefiting a worthwhile charity! (It is worth noting that charitable intent is not required. A CRT often makes financial sense without considering the benefit to the charity).

The primary disadvantages of a CRT are:
Loss of direct control of the asset (although you can name the trustee of the CRT). The disinheritance of your children from the asset that you put in the CRT. To minimize the second disadvantage, life insurance is frequently used to replace the asset that the children have lost to the CRT. Often times a wealth replacement trust (ILIT) is used concurrently with a CRT. Creating this trust has the advantage of replacing an asset that is in the taxable estate with one (the life insurance in the ILIT that is outside of the estate and therefore not subject to estate taxes. Frequently, the life insurance premiums can be paid by the tax savings from setting up the CRT.

When setting up a CRT, you should start with a good CPA who can help you analyze the financial advantages and disadvantages. Also, your CPA can advise you whether or not the CRT will create an Alternative Minimum Tax problem. Next, consult with your attorney who will actually draft the trust. You may want to get some financial advice on the investments inside the CRT from your financial planner. Finally, check with us, your insurance advisor to look into the costs of a life insurance policy.

Some people that set up CRTs do not tell the charity that they will eventually be the beneficiary of the trust, but most notify the charity before they set up the trust. If there are enough assets in the trust and the other factors add up, the charity may be willing to pay for the legal and accounting expenses that go into creating a CRT.

Additional Information on Estate Planning:

Estate Planning Overview
Irrevocable Life Insurance Trusts (ILITS)
Using Ownership and Beneficiary Designations
How to Get Existing Policies Out of my Estate
Can the Three-Year Rule be Avoided?
Second to Die Life (Survivorship) Insurance
Gifts - Overview
Leveraging Your Gifting Program
Grandchildren
Generation Skipping
Living Trusts
Credit Bypass Trust
Charitable Remainder Trusts
Avoid Capital Gains Income for life

Click Here to return to Life Insurance Main