Yes, absolutely you can fund a charitable remainder trust (CRT) with a business interest, such as stock in a privately held company, partnership interests, or even real estate used in a business. However, it’s not quite as straightforward as donating publicly traded stock or cash and requires careful planning with an experienced estate planning attorney like Steve Bliss. CRTs allow you to donate an asset, receive an income stream for a specified period (or for life), and then have the remaining assets go to a charity of your choice. This can offer significant tax benefits, but the IRS scrutinizes CRTs funded with illiquid assets like business interests more closely, ensuring the valuation and projected income are realistic and compliant.
What are the tax benefits of donating a business interest to a CRT?
Donating a closely held business interest to a CRT can unlock substantial tax advantages. Primarily, you receive an immediate income tax deduction based on the present value of the remainder interest—the portion of the asset the charity will eventually receive. This deduction is limited to 30% of your adjusted gross income (AGI) for the year, with any excess carried forward for up to five years. Furthermore, by transferring the business interest into the CRT, you avoid potential capital gains taxes you would have incurred if you had sold the interest directly. This is particularly beneficial for appreciating assets where a direct sale would trigger a large tax bill. According to a recent study by the National Philanthropic Trust, CRTs accounted for over $11 billion in charitable giving in 2022, demonstrating their effectiveness as a wealth transfer and tax planning tool.
What challenges might I face when donating a business interest to a CRT?
Donating a business interest to a CRT isn’t without its challenges. The IRS requires a qualified appraisal to determine the fair market value of the business interest, which can be costly and time-consuming. Furthermore, the IRS will carefully review the projected income stream generated by the asset. If the income is too high, the IRS may disallow the deduction or recharacterize the transaction. One common issue is overstating the growth potential of a business. I remember working with a client, a successful local bakery owner, who wanted to fund a CRT with her business. She projected a significant increase in revenue based on a planned expansion, but the appraisal came back much lower, and the projected income was deemed unrealistic. We had to adjust the plan, scaling back the projection and ensuring a more conservative valuation, which ultimately protected her deduction and the integrity of the CRT.
What happens if the business fails after I fund the CRT?
This is a valid concern, and one that requires careful consideration. If the business interest declines in value after you transfer it to the CRT, the income stream may be lower than projected. While you won’t be liable for the loss, it may affect the amount the charity ultimately receives. It’s crucial to understand that the CRT is an irrevocable trust, meaning you cannot reclaim the asset once it’s transferred. I had a client, a tech entrepreneur named David, who funded a CRT with stock in his start-up. The company ultimately failed due to unforeseen market changes, and the CRT received very little. He was initially upset, but we had proactively discussed this possibility during the planning process, and he understood that the primary benefit was the initial income tax deduction and the philanthropic impact, rather than relying on the long-term growth of the business. We had also included a “backup” plan involving life insurance, which provided a benefit to the charity even if the business failed.
How can Steve Bliss help me navigate this process?
Navigating the complexities of funding a CRT with a business interest requires a skilled estate planning attorney. Steve Bliss and his team have extensive experience in structuring CRTs, valuing illiquid assets, and ensuring compliance with IRS regulations. We work closely with qualified appraisers and financial advisors to develop a comprehensive plan that aligns with your financial goals and philanthropic objectives. We’ll also handle all the necessary paperwork and filings, providing peace of mind that your CRT is properly established and managed. With careful planning and expert guidance, you can leverage a CRT to maximize tax benefits, support your favorite charities, and create a lasting legacy. A well-structured CRT can be a powerful tool for both wealth transfer and charitable giving, and Steve Bliss is dedicated to helping you achieve your goals.
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
estate planning
living trust
revocable living trust
family trust
wills
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Map To Steve Bliss Law in Temecula:
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “What is Medicaid estate recovery and how can I protect against it?” Or “How do debts and taxes get paid during probate?” or “What are the disadvantages of a living trust? and even: “How soon can I start rebuilding credit after a bankruptcy discharge?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.