Legal Memorandum: Non-charitable Tax Benefits of a CRT

Issue: What are the non-charitable tax benefits of a Charitable Remainder Trust?

Area of Law: Agricultural Business, Estate Planning & Probate, Tax Law
Keywords: Charitable remainder trust (CRT); Non-charitable tax benefits; Charitable deduction
Jurisdiction: Federal
Cited Cases: None
Cited Statutes: None
Date: 11/01/2008

Because a “charitable remainder trust (CRT)” has the word “charitable” in its name, it would seem logical that the primary purpose of creating such a trust is to receive a significant charitable deduction.  However, people often create CRTs even though they will not receive a charitable deduction upon the creation of the CRT, and there will never be a significant deduction for them or their estates.  Instead, other, more important, tax advantages may influence their decision to create a CRT.

Example:  Bob transfers crops and livestock to a CRT.  The CRT sells the crops and livestock for their fair market value and the proceeds remain in the trust.  Bob does not recognize federal taxable income or self-employment income on the sale of the crops and livestock.  The CRT does not recognize any taxable income on its sale of the crops and livestock, even though the sale occurred shortly after Bob contributed them to the CRT because the sale was not a pre-arranged transaction, and was independently done by the trustee of the CRT.  The expenses for raising the crops and livestock, prior to transferring them to the CRT, are expenses that Bob may still deduct on his federal income tax return.  Bob will receive annual distributions from the CRT that will be taxed as ordinary income, and not subject to the self-employment tax.  However, because the crops and livestock were ordinary income types of property, Bob does not receive a charitable deduction when the crops and livestock are […]

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