A Charitable Remainder Trust (CRT) is another excellent way to gift highly appreciated assets like Amazon stock while reducing taxes, generating income, and supporting charitable causes. Here's how it works and compares to a GRAT:
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How a CRT Works
1. Set Up the CRT
Work with an estate planning attorney to establish an irrevocable CRT.
Designate yourself (or another beneficiary) to receive an income stream from the trust for a specified term (e.g., your lifetime or up to 20 years).
At the end of the term, the remaining trust assets go to your chosen charity.
2. Fund the CRT with Amazon Stock
Transfer the Amazon stock into the CRT. The CRT sells the stock, avoids capital gains taxes on the sale (as it's a tax-exempt entity), and reinvests the proceeds.
3. Receive Income
You receive annual payments from the CRT based on the unitrust amount (a fixed percentage of trust assets, revalued annually) or annuity amount (a fixed dollar amount). This provides you with an income stream for life or a set term.
4. Charitable Deduction
When you fund the CRT, you receive an immediate charitable income tax deduction based on the present value of the remainder that will eventually go to charity.
The deduction depends on:
The trust's term.
The payout rate (e.g., 5–7% annually).
The IRS §7520 rate (used to calculate the remainder value).
5. Remainder to Charity
At the end of the term, any remaining assets in the trust are transferred to the designated charity.
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Tax Benefits
Avoidance of Capital Gains Tax:
When the CRT sells the Amazon stock, it avoids the capital gains tax you would have incurred if you sold it yourself.
Income Tax Deduction:
The immediate charitable deduction can offset other taxable income, subject to IRS limitations (up to 30% of AGI for appreciated stock).
Estate Tax Savings:
Assets transferred to the CRT are removed from your taxable estate.
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Key Considerations
Payout Rates:
A higher payout rate reduces the charitable remainder (and your deduction) but increases your income during the trust term.
Irrevocable Structure:
Once assets are transferred to a CRT, the decision is final, and you cannot reclaim them.
Charity Selection:
You can choose any IRS-qualified charity or multiple charities.
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Comparison: CRT vs. GRAT
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When CRT Might Be Better
You have a philanthropic intent.
You want to avoid paying capital gains taxes on highly appreciated assets.
You desire a lifetime income stream and an immediate tax deduction.
