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Charitable Remainder Trust

A Charitable Remainder Trust (CRT) is a tax-saving option for people who want to make a substantial gift to charity.

A CRT is an irrevocable trust. To realize its full potential, a CRT requires special legal, accounting and tax administration. Your Dunham Trust Company senior trust officer will work with your investment professional, attorney and tax adviser to help you establish a CRT if this type of trust is right for you.

In exchange for a charitable gift, a CRT pays income to the trust beneficiary (usually you and/or a spouse as grantors) for a fixed period or for life. At the end of the trust (usually your lifetime), remaining assets pass to one or more of the charities you have chosen. CRT benefits include:

Current income tax deduction. A gift to a CRT creates an income tax deduction for the present value of your charitable gift. This current income tax deduction helps offset your taxable income.

Possible deferral of capital gains taxes. Because a CRT is tax-exempt, capital gains taxes are deferred when the gifted appreciated assets are sold by the CRT. This allows the CRT to convert the full value of assets into an investment that can provide you with lifetime income.

May reduce or eliminate estate taxes. Since the donated assets generate a charitable estate tax deduction at the end of your lifetime, estate taxes may be decreased or eliminated.

Provides income stream, often for life. When a CRT sells assets you donate, the money generated can be placed in an income-producing investment. Income is then distributed according to trust provisions. For some types of CRTs, principal may also be distributed. Because no capital gains taxes have been paid, the amount invested may be greater than if the assets had been sold outside of a CRT and been subject to capital gains or income taxes.

Benefit your charity of choice. When the trust ends, the assets remaining in the trust pass to the charity of your choice.

There are a few variations of CRTs which may be worth considering with your Dunham Trust Company senior trust officer.

You can maximize your estate for your beneficiaries by using some of your tax savings and CRT income to make annual gifts to an Irrevocable Life Insurance Trust (ILIT). An ILIT buys a life insurance policy on you. At the end of your lifetime, assets in the charitable trust pass to charity. The ILIT passes life insurance proceeds to your beneficiaries free of estate and income taxes.

A Charitable Remainder Annuity Trust (CRAT) provides a fixed dollar amount with each payment to the beneficiary, corresponding to a percentage of the original investment paid out annually. These payments can be made in one sum or in several installments throughout the year.

A Charitable Remainder Unitrust (CRUT) pays beneficiaries a fixed percentage of the fair market value of trust assets, as determined each year, and can also be made in one lump sum each year, or in several installments.

The information above is general in nature and not intended as legal or tax advice. Please consult with your tax professional or attorney regarding guidance for your individual circumstances. Dunham Trust Company recommends you authorize our senior trust officers to work in tandem with your trusted financial professionals.

Such trusts are used to develop a vehicle for donations to a favorite charity, which also allows for the reduction of income taxes through a charitable deduction and favorable tax treatment at the date of the gift by non-recognition of built-in-capital gains.

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