Unlock Hidden Wealth: How a Charitable Remainder Trust Can Transform Your Client’s Financial Future

In the ever-evolving world of financial advising, staying ahead of the curve is essential. Recently, an advisor implemented a powerful strategy that transformed a client’s financial future. The client owned a fully depreciated property valued at $5,000,000, and the advisor showed them how to unlock its potential using a Charitable Remainder Trust (CRT).

?The result? The client was able to acquire a new property without having to buy up, create a step up in basis, secure tax savings, generate additional cash, and protect their assets—all while reducing the estate for estate tax purposes.

?Throughout the process, the advisor was able to explain that by utilizing 50% of the client’s undivided property, they could achieve their goals of saving taxes and creating additional tax deductions by taking advantage of a trust that has been around since 1969 under section 664 of the Internal Revenue Code.

?What is an Undivided Interest?

Undivided interest refers to owning a portion of a property without splitting it into separate physical parts. By donating an undivided interest to a CRT, your client can maintain ownership of the remaining portion, leveraging the property's value for both charitable and financial gains.

?Implementing the Strategy

?1. Choose the Undivided Interest to Donate The first step is determining the percentage of the property to donate to the CRT. For example, donating 50% of a $5,000,000 property can provide a significant charitable deduction and generate substantial capital when the CRT sells it.

2. Establish the CRT and Transfer the Interest Next, work with a qualified attorney to set up the CRT and transfer the selected undivided interest. This step will yield a charitable income tax deduction based on the present value of the remainder interest destined for the charity.

3. Sell the Undivided Interest With the CRT now owning the undivided interest, it can be sold tax-free, thanks to the CRT’s tax-exempt status. The full proceeds are then reinvested within the trust.

4. Manage the Remaining Interest As the original owner, your client retains control over their remaining interest. They can sell this portion at the same time as the CRT’s sale or later, using the proceeds to reinvest in a new property, effectively resetting the capital gains clock with a new basis.

5. Reinvest in New Property The proceeds from the sale of the remaining interest can be used to purchase new real estate, establishing a fresh basis and potentially lowering future tax exposure.

6. Secure Future Income The income generated by the CRT can be invested in financial vehicles that protect the client’s family and provide potential tax-free income in future years, optimizing estate planning.

7. Fulfill Charitable Intentions At the end of the CRT’s term or upon the client’s passing, the remaining assets in the trust are transferred to the charity of their choice, fulfilling their philanthropic goals.

?The Benefits of This Strategy

• Immediate Tax Deduction:?Your client can gain a charitable tax deduction by donating an undivided interest to the CRT.
• Avoid Capital Gains Tax:?The CRT’s tax-exempt status allows it to avoid capital gains taxes on the sale, preserving more of the property’s value.
• New Basis for New Property:?Selling the remaining interest and reinvesting in new property establishes a new basis, potentially lowering future tax exposure.
• Family Protection and Tax-Free Income:?The CRT income can be invested wisely to secure the client’s family’s future and potentially enjoy tax-free income down the road.
• Philanthropy:?The remaining assets in the CRT go to a charity, fulfilling the client’s charitable intentions.

?This strategy provides a unique opportunity to unlock the value of a fully depreciated property, avoid immediate capital gains taxes, establish a new basis in new real estate, and support a charitable cause—all while securing the client’s financial future and potentially enjoying tax-free income.

?Imagine the impact you can make for your clients by applying these innovative strategies. If you have clients or prospects who could benefit from this approach, or if you want to learn more, don’t hesitate to reach out.

Let’s explore how we can transform your clients’ financial futures together. Click on the link to set up a call Session strategy Advanced Planning Resources ?or comment below