A charitable remainder trust (CRT) is a tax-exempt irrevocable trust that is created to decrease taxable income of people by initially giving income to the beneficiaries of the trust for a set period of time and then donating the rest of the trust funds to a designated charity.
Financial Advisor’s recent article titled “Putting Art Into Charitable Remainder Trusts” says that people who have valuable artwork or other collectibles that are hard to divide or that their kids don’t want can investigate a CRT with an estate planning attorney as an option.
A CRT is designed to save asset owners taxes that they would have to pay if they sold their artworks on the open market. CRTs are also designed so that when they expire, they allow philanthropically inclined individuals to help their favorite charitable organizations.
Many people with higher net worth hold about a tenth of their wealth in art and collectibles. Due to the nature of the assets, the value may be hard to split up among their heirs, or no one heir may want that specific piece of art. A CRT gives the art or collectible owner a solution to that issue. The trust will reduce their taxable income, by first dispersing income to the trust beneficiaries for a certain period of time, and then the remainder is donated to a charity.
It’s important to note that art markets are quirky, and a CRT protects an owner from forcing them into a fire sale when they or a trustee is trying to divide the estate. For example, say the parents purchased a number of pieces of artwork on a European vacation and shipped them back to the United States. They have three children, but there’s one piece of art that’s more valuable than the others. As a result, there is no way to equally divide the pieces. If they sold the pieces outright, there would be a 28% tax imposed.
However, the parents could instead place the artwork in a charitable remainder trust, get a tax deduction for part of the value, get income from the trust, and then give a sum to a selected charity.
The asset can be held in the trust until one owner dies, until both parents pass, or for up to a certain number of years based on how the trust is set up. Contact an estate planning attorney experienced in charitable planning strategies.
Reference: Financial Advisor (Feb. 21, 2020) “Putting Art Into Charitable Remainder Trusts”