DEFINITION:
A CRT is a legal arrangement where you donate assets to a trust, receive income for life (or a set period), and leave the remaining assets to a charity. It’s like getting paid now for a gift you’ll make later.
When & Why It’s Used:
CRTs are used by charitably inclined clients who want to convert appreciated assets (e.g., stocks, real estate) into income without triggering capital gains taxes. For example, selling a 1millionstockthatcost1millionstockthatcost100k to buy would normally create a $900k taxable gain. With a CRT, the trust sells it tax-free, pays you income, and donates the remainder.
IMPORTANCE IN ADVISOR – CLIENT COMMUNICATION:
CRTs align financial and philanthropic goals. Advisors can say, “You support the environment—let’s fund a CRT that pays you income and later donates to Greenpeace.” This personalizes planning and adds emotional value.
They also demystify tax benefits. Clients might not realize they can avoid capital gains taxes while donating. Explaining CRTs shows how strategic giving can enhance both their financial security and legacy.
Lastly, CRTs require long-term commitment. Advisors must ensure clients understand the irreversible nature of the gift and confirm their charitable intent is genuine, not just tax-driven.
Conversation Examples:
Advisor: “A CRT lets you sell your rental property tax-free, receive $50k/year for life, and leave the rest to your alma mater.”
Client: “I want to donate but need retirement income.”
Advisor: “A CRT could do both. Let’s crunch the numbers.”