CRTs are Making a Comeback

September 23, 2013

Find out why CRT's may be making a comeback.

Do you recall the late 1990s; the Denver Broncos won back-to-back Super Bowls in '98 and '99, the ultra-casual grunge look was in and not to forget the surge in value of tech stocks. A couple weeks ago, my 16 year old daughter came across some old photos of our family in Bronco Super Bowl attire as well as me in grunge attire. She told me she hopes I never dress like that again. I told her you never know what trends will make a comeback.

Certain clothing trends won't make a comeback for me. However, I would love to see the Broncos make a comeback and win the Super Bowl this year. In addition, the stock market and housing market have definitely made a welcome comeback from the 2008 financial crisis.

With that being said, the Advanced Marketing Group has been receiving an increase in the number of calls from financial advisors regarding Charitable Remainder Trusts (CRTs). As a result, we have reached out to a couple of CRT administrators and confirmed they have also seen a big increase in the interest in CRTs this year. Why? Some of the most common factors why CRTs may be making a comeback include:

  • Significant appreciation in stocks and real estate holdings
  • Clients looking to manage an increase in tax rates
  • Increase in retiring baby boomers who are looking for income

Many financial advisors think CRTs are large cases and primarily only for the wealthy. This is not necessarily the case. As of 2012, an IRS statistic illustrates that 71% of existing CRTs are trusts with under $500,000 in assets. Source: http://www.irs.gov/file_source/pub/irs-soi/12eo04sit.xls

 

How Does a CRT Work?

This grid illustrates how a CRT works for your clients, who are commonly referred to as donor(s).

 

  1. Gift cash or highly appreciated assets into the CRT.
  2. Receive a current income-tax deduction as well as an income stream for a certain period of time or for life.
  3. Use some of the income generated from the CRT to make annual gifts to an Irrevocable Life Insurance Trust (ILIT) that buys a life insurance policy (usually second-to-die) on the lives of the donor(s) (income beneficiaries).
  4. Assets in the ILIT should pass to heirs with no estate or income taxes due at that time.
  5. Assets in the CRT will pass to the designated charity at death of last donor.
     

Next Steps 

So, with the stock market and the real estate making a comeback, now may be the time to discuss establishing a CRT with clients who are charitably inclined, interested in receiving a tax deduction, and seeking income.

If you have any additional questions, please feel free to contact Retirement Strategies Group at (800)722-2333, ext. 3939, or e-mail us at RSG@PacificLife.com.

Picture of Steve Chmelka

Steve is a Senior Retirement Strategies Consultant with the Retirement Solutions Division at Pacific Life. He brings more than 25 years of industry experience in financial planning and wealth management, including detailed knowledge of both employer-sponsored retirement plans and retirement-planning strategies.

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