Article

Supercharge the sale of your business with a charitable remainder trust

Oct. 31, 2022 · Authored by William Grady

Key takeaways:

If you own a closely held business, choosing how and when to exit your business is a critical part of your planning. You’ve worked hard to build your business and want to ensure that you get rewarded appropriately. You undoubtedly also want to ensure the continued success of your business. The number of options for achieving these goals — and the amount of time involved — can be daunting.
If one of your goals also involves benefiting charity, you might consider the use of a charitable remainder trust (CRT).
You are likely continuing to assess options to reduce your current income tax bill and may be concerned about the possibility of higher income tax rates to come. Charitable contributions are one way clients like you can lower your overall tax bill.

Interest rates for many sophisticated estate planning techniques remain low, but have risen and are expected to continue to rise. For those choosing to implement a CRT, higher rates are to your advantage.
One potential concern will be related to current rates of return, particularly for equities. Now, more than ever, the choice of investment after the sale is of paramount importance to ensure that the trustee of the CRT generates enough income to make payments to you, and does not have to make the payments to you of the underlying investments themselves.

Introduction to charitable remainder trusts

Beyond making contributions directly to charity or utilizing donor-advised funds or a private foundation, other options to benefit charity involve the use of so-called split-interest charitable gifts. One version of such a gift is the CRT. Working with your attorney, you create a trust for the ultimate benefit of one or more charities of your choosing. As the donor, you contribute assets to the trust and retain the right to receive a stream of payments, typically for a number of years. You also receive a charitable income tax deduction for the year in which you make the contribution. This is based upon the present value of the remainder interest that will pass to the charitable beneficiaries. The factors used in computing the present interest are the following: