Charitable Remainder Trusts (CRTs) offer a powerful way to achieve both financial and philanthropic goals, and increasingly, donors are exploring options beyond traditional trust companies for administration; utilizing a donor-advised fund (DAF) intermediary is a viable, though nuanced, strategy.
What are the Benefits of a Charitable Remainder Trust?
A CRT allows individuals to donate assets—like stock, real estate, or other property—to a trust, receive an immediate income tax deduction, and then receive income payments for a specified period or for life. The remaining assets in the trust eventually go to a designated charity or charities. According to recent data from the National Philanthropic Trust, charitable giving via non-cash assets like appreciated stock is on the rise, increasing by 18.1% in 2022, and CRTs are a popular vehicle for facilitating these gifts. The immediate tax deduction is calculated based on the present value of the remainder interest—the portion of the trust assets that will eventually benefit the charity—and factors like the donor’s age and the applicable federal interest rate play significant roles. It’s a sophisticated estate planning technique, and proper structuring is vital to maximize benefits and avoid unintended consequences; for example, a properly structured CRT can potentially avoid capital gains taxes on the appreciated asset at the time of the donation.
Is a DAF a Suitable Trustee for a CRT?
Traditionally, CRTs are administered by independent trustees—banks, trust companies, or individuals with financial expertise. However, some DAF sponsors are now offering to act as trustees for CRTs, providing a streamlined approach for donors who already utilize DAFs. While it’s possible, it’s not universally offered and requires careful consideration. The IRS requires CRTs to have a clear charitable purpose and adhere to strict guidelines. A DAF, while charitable, is primarily a grant-making vehicle, and its role as a trustee needs to align with these regulations. Currently, approximately 90% of DAF assets are held by just a handful of large national organizations, meaning there’s a concentration of control, and donors need to ensure the DAF sponsor has the experience and resources to properly administer a CRT. “A key aspect of CRT administration is ongoing management of the trust assets to generate income for the donor while preserving capital for the future charitable beneficiaries,” explains Steve Bliss, a Living Trust & Estate Planning Attorney in Escondido.
What Went Wrong for the Millers?
The Millers, a retired couple from Carlsbad, were eager to donate a large block of appreciated stock to charity and create a CRT to provide them with income during retirement. They attempted to set up a CRT through their DAF provider, believing it would be a simpler, more cost-effective solution. However, the DAF provider lacked the internal expertise to properly administer the CRT, leading to incorrect income calculations, delayed distributions, and ultimately, a violation of IRS regulations. The Millers found themselves facing penalties and a significant amount of legal fees to rectify the situation. The DAF provider simply wasn’t equipped to handle the complexities of trust administration, and the Millers learned a costly lesson about the importance of seeking professional guidance. According to a recent study by Cerulli Associates, approximately 25% of investors who utilize complex financial instruments like CRTs do so without adequate professional advice.
How Did the Johnsons Successfully Implement a CRT?
The Johnsons, after hearing about the Millers’ experience, approached Steve Bliss for assistance. They had a similar desire to donate appreciated real estate to charity and create a CRT. Steve Bliss carefully reviewed their situation and recommended establishing a traditional CRT with an independent trustee—a local bank specializing in trust administration. He worked closely with the bank and the Johnsons to ensure the trust was properly drafted, funded, and administered. The Johnsons received a substantial income tax deduction, started receiving consistent income payments, and had peace of mind knowing their charitable goals would be fulfilled. Steve Bliss ensured the trust language was precise, all IRS requirements were met, and the trustee had the necessary expertise to manage the assets effectively. It was a successful implementation of a CRT that resulted in a win-win situation for the Johnsons and their chosen charities; it reinforced the importance of collaborating with a qualified attorney to achieve the desired outcome.
What Are the Potential Risks and Considerations?
While using a DAF intermediary can offer convenience, it’s crucial to weigh the potential risks. The DAF sponsor may not have the same fiduciary duties as a traditional trustee, and there could be limitations on investment options or administrative services. Donors should carefully review the DAF’s policies and procedures, and ensure it has the capacity to handle the complexities of CRT administration. It’s also essential to consider the long-term implications, as the DAF’s structure could change over time. “Due diligence is paramount,” advises Steve Bliss. “Donors need to thoroughly vet the DAF sponsor, understand its capabilities, and ensure it aligns with their philanthropic goals and financial objectives.” Approximately 10% of DAFs have restrictive investment policies that may not be suitable for a CRT’s needs.
<\strong>
About Steve Bliss at Escondido Probate Law:
Escondido 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 Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
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
family trust
wills
banckruptcy attorney
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/oKQi5hQwZ26gkzpe9
>
Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “How can I reduce the taxes my heirs will have to pay?” Or “What’s the difference between probate and non-probate assets?” or “What are the main benefits of having a living trust? and even: “Can I transfer assets before filing for bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.