Transcript:
Easan Arulanantham:
What is the charitable remainder trust? You know, I’ve heard about it in the news a couple times, … what can I do with this?
Tom Vaughan:
Yeah, charitable remainder trust. Basically, you can place an appreciated asset. I’ve had clients that have sold properties, either current home or rental property. And you can even place a portion of the asset into this charitable remainder trust. And so let’s say I bought a house for $100,000, now it’s worth a million. And you know, it’s a rental property, I don’t want to hold on to it anymore. I don’t want to deal with the, you know, the, the tenants and you know, whatever it might be. So I put that house inside the charitable remainder trust. And essentially, I get an income coming out of that trust, let’s just say 6%, that comes out of that trust for the rest of my life. And the remainder goes to the charity, it whatever’s left, you know, after I pass away goes to charity. And so what happens for us is, we end up with those in terms of the asset management. So we’ll create a portfolio with the money from the house sale, and you don’t have to pay taxes on the house sale, so you pay $100,000, it’s worth a million. If it’s a rental property, you might have written it down on depreciation, so you end up with a big gain. And if you put it inside the charitable remainder trust, there is no gain. And so the full million dollars in that case, would go into this portfolio and you get your 6%, or the different numbers that you can choose on how much you get.
And there’s different ramifications for that, which is beyond the scope of the show. But nonetheless, that’s what a charitable remainder trust is, in terms of. Lawyers are better at understanding what they are and exactly how that works. Tax accountants, tax lawyers are even better at understanding how those work,. What we end up doing is managing the asset and having that distribution go on. And then, you know, passing it through to the charity when that person passes away. So I’ve seen it, I’ve seen people put their highly appreciated stock in those, seeing people put a portion of their home, as they sell it and move someplace cheaper. And I’ve seen people put their rental property. So you know, that’s what I’ve seen. And all of it is to avoid the capital gains tax, as far as that goes. So it the one downfall would be of course, there’s an accounting issue there, they’re a little bit difficult to account for, you have to do it every year. But instead of it going to your kids, if you have any or your beneficiaries that you might care about that money’s going to the charity. And so again, some situations where people don’t have kids, or there’s not not a big issue there as far as that goes. So you have to weigh that as part of the scenario. But yeah, that’s a that’s a valid strategy. We’ve seen we’ve run into them a fair number of times.
Easan Arulanantham:
Yeah, and one of them a little bit less common is the charitable lead trust, which is kind of the opposite, where the charity gets the income, but the remainder goes to your beneficiaries. And so that also provides another way to like, say, you don’t need the income now, but you want it to go on to your children, this is a good way to get it out ..to avoid some of those taxes.
Tom Vaughan:
Yeah, yeah, exactly. These are all strategies that, you know, we can talk to you about, you know, if you have some additional questions, take a look at what those numbers would look like. And whether it makes any sense. We can even model these types of things inside the financial planning software. So there’s a whole bunch of different areas there that are interesting. You know, there’s pros and cons. And we can certainly talk about what those are, especially from the standpoint of how the investing works. Because that’s where we come in.