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Save Taxes & Create Income With Charitable Remainder Trusts · The Wealth Cafe

• 0:16
  SPEAKER_00: Hi everyone, welcome back for another episode of the Wealth Cafe.
• 0:18
  SPEAKER_00: I'm Caroline Tannis, lead financial advisor and founder of Tannis Financial Group and host of the Wealth Cafe podcast.
• 0:25
  SPEAKER_00: Today, we are going to start by describing a situation and a version of it that I hear somewhat regularly from clients coming in.
• 0:32
  SPEAKER_00: Now, picture a woman coming in for a portfolio review.
• 0:36
  SPEAKER_00: She has a stock position that she has held for 20 years, and maybe it's company stock from her corporate days, or maybe it's a fund that she bought early on in her career when the market was much lower.
• 0:47
  SPEAKER_00: This position has now grown dramatically.
• 0:49
  SPEAKER_00: The cost basis is a fraction of what it was, and now it has grown to an exponential worth today.
• 0:55
  SPEAKER_00: And every year, every single year, she thinks about rebalancing.
• 0:59
  SPEAKER_00: She knows what the concentration risk is, and she also knows that she should diversify.
• 1:04
  SPEAKER_00: But every time she does, she starts doing the math on the capital gains or the taxes that she has put back on the shelf because she wants to ignore it because the bill is always too big.
• 1:14
  SPEAKER_00: So the position stays and it grows and it grows more concentrated as every year goes by.
• 1:20
  SPEAKER_00: Or maybe she has a piece of real estate, a rental property that she owned for 15 years, a vacation home that she no longer uses the way that she used to, and she doesn't particularly want to manage it anymore.
• 1:32
  SPEAKER_00: But selling it would trigger a large capital gains tax, which is an event that takes a significant portion off the top before she could redeploy any of those proceeds.
• 1:42
  SPEAKER_00: So she holds on to that too.
• 1:44
  SPEAKER_00: Now, what if there was a way to move that appreciated asset, diversify it, generate an income stream from it, and make it a meaningful charitable gift without immediately paying any of the capital gains tax?
• 1:59
  SPEAKER_00: There is a way, and it is called a charitable remainder trust.
• 2:02
  SPEAKER_00: And it is one of the most sophisticated and also most underutilized planning tools available to wealthy women who care about both their financial efficiency and their philanthropic legacy.
• 2:14
  SPEAKER_00: So today we are going to break it down completely.
• 2:16
  SPEAKER_00: We're going to talk about what it is, how it works, where it fits, and how to tell whether it might be the right tool for you to use in your life.
• 2:24
  SPEAKER_00: A charitable remainder trust, also known as a CRT, is a specific type of irrevocable trust.
• 2:31
  SPEAKER_00: That's a key to know here.
• 2:33
  SPEAKER_00: And it has been governed by section 664 of the IRS tax code.
• 2:37
  SPEAKER_00: Now, let me walk you through what that structure actually looks like.
• 2:40
  SPEAKER_00: Now, step one, you transfer in an appreciated asset into that trust.
• 2:45
  SPEAKER_00: That can be a publicly traded security like a stock or an investment, real estate, business interest, or other appreciated property.
• 2:53
  SPEAKER_00: Step number two is the trust sells that asset.
• 2:56
  SPEAKER_00: And here is the critical piece.
• 2:58
  SPEAKER_00: The trust itself does not pay capital gains tax on the sale.
• 3:02
  SPEAKER_00: The trust, it's a tax-exempt entity.
• 3:04
  SPEAKER_00: Now the gains are not recognized at the moment of sale the way they would be if you sold the asset yourself.
• 3:10
  SPEAKER_00: The full proceeds stay inside of that trust.
• 3:13
  SPEAKER_00: Nothing goes to the IRS at that moment.
• 3:16
  SPEAKER_00: Step number three is now the full proceeds are reinvested inside of the trust.
• 3:21
  SPEAKER_00: The trust then pays you or your named beneficiary or whoever you choose an income stream.
• 3:28
  SPEAKER_00: Now that income stream can last for the rest of your life, for the joint lives of you and your spouse, or for a fixed term of up to 20 years.
• 3:36
  SPEAKER_00: That's a key number to know there, and you can choose.
• 3:39
  SPEAKER_00: Step number four, at the end of the trust term or upon death, the remaining assets in the trust pass to the charitable beneficiaries that you designate, your donor advice fund.
• 3:51
  SPEAKER_00: It could be a university that you care about, a nonprofit whose work really matters to you.
• 3:56
  SPEAKER_00: The charity you choose, it's up to you.
• 3:59
  SPEAKER_00: Step number five is the year in which you establish the trust, you actually receive a charitable income tax deduction that is equal to the present value of what the charity is expected to receive.
• 4:10
  SPEAKER_00: Now, that deduction, it is available immediately, subject though to income limits, and it can be carried forward for up to five years if you aren't able to use it all in that one year.
• 4:21
  SPEAKER_00: So to summarize and give you the full picture here, you are moving an appreciated asset out of your portfolio to avoid the immediate capital gains tax.
• 4:29
  SPEAKER_00: You're receiving an income stream for life or of a fixed term, and you're making a meaningful charitable gift at the end, and you are taking a tax deduction in the year that you set it up.
• 4:39
  SPEAKER_00: Those four benefits working together are why this strategy is so powerful.
• 4:45
  SPEAKER_00: There are actually two primary structures for a CRT, and which one of that is right for you, it depends really on your preference when it comes to income.
• 4:54
  SPEAKER_00: Now, a charitable remainder annuity trust, also called a CRAT, pays you a fixed dollar amount in every year.
• 5:00
  SPEAKER_00: That amount is set at the time the trust is created and it won't change.
• 5:04
  SPEAKER_00: This doesn't matter if the investments are doing really well and how the trust is performing.
• 5:10
  SPEAKER_00: This is a predictable, stable, good, and certain income if that is what you are looking for.
• 5:15
  SPEAKER_00: The other option is called a charitable remainder unitrust, also called a crut, and it pays you a fixed percentage of the trust's value.
• 5:24
  SPEAKER_00: And this is recalculated every year.
• 5:26
  SPEAKER_00: Now, if the trust grows, your payment then grows.
• 5:28
  SPEAKER_00: If it shrinks, your payment will then decrease.
• 5:31
  SPEAKER_00: More variable, but it has a lot of upside if the investments are performing well.
• 5:36
  SPEAKER_00: Now, there's a few technical guardrails that you need to know when deciding.
• 5:40
  SPEAKER_00: The payout rate must be at least 5%, but it can't be more than 50% of the annual value.
• 5:47
  SPEAKER_00: And the charitable remainder, the amount that will ultimately go to charity, must be at least 10% of the initial contribution at the time of funding.
• 5:55
  SPEAKER_00: Your estate attorney and your financial advisor should model out both structures for you against your income needs, your charitable giving goals, and also help you determine which one is going to serve you and work best inside of your life.
• 6:08
  SPEAKER_00: There are a few specific points that I want to make sure you understand given where we are in 2026.
• 6:14
  SPEAKER_00: So as we go forward in time, things may change.
• 6:17
  SPEAKER_00: Now, on the capital gains benefit, the CRT is the most powerful when used with highly appreciated assets.
• 6:24
  SPEAKER_00: This could be long-held stock, concentrated positions, real estate, things that you may have been reluctant to sell.
• 6:30
  SPEAKER_00: The capital gains tax you would have paid on that appreciation, which at the federal level could be 20% plus the 3.8% net investment income tax, and potentially more, depending on what state you are in.
• 6:43
  SPEAKER_00: This is going to stay inside of the trust and it's working for you instead of going to IRS or Uncle Sam.
• 6:50
  SPEAKER_00: Now, for a position with significant unrealized gain, this is not a marginal difference.
• 6:54
  SPEAKER_00: This is a material and incredibly significant one.
• 6:58
  SPEAKER_00: For the charitable deduction under the One Big Beautiful Bill Act, it made some modest changes to charitable deduction rules for 2026.
• 7:07
  SPEAKER_00: Now, for the highest bracket filers, the deduction value is now approximately 35 cents on the dollar rather than 37 cents.
• 7:15
  SPEAKER_00: So this slightly increases the net after tax cost of charitable giving for those that are in that top bracket.
• 7:21
  SPEAKER_00: However, the combination of capital gains, avoidance, ongoing income streams, and charitable deductions still make a CRT an extraordinarily efficient vehicle that can be used for the right candidate for it.
• 7:35
  SPEAKER_00: That's the key thing.
• 7:36
  SPEAKER_00: Now, on who this is and isn't for, I want to be direct about this.
• 7:40
  SPEAKER_00: A CRT, it is irrevocable.
• 7:42
  SPEAKER_00: Once you are funding it, you can't get this asset back.
• 7:46
  SPEAKER_00: This is not a structure for somebody who is primarily motivated by tax savings with a charitable beneficiary as an afterthought.
• 7:53
  SPEAKER_00: This is a planning strategy and it is for the woman and her family that have genuine philanthropic intent, meaningful appreciate assets that have been holding for a long period of time and an income need in retirement that the trust can pay out and help address.
• 8:10
  SPEAKER_00: If all three of those are true, the concentrated appreciate assets, real charitable goals, and the income need, this strategy with well-designed intentions could be the perfect fit for that situation.
• 8:23
  SPEAKER_00: And the situation is common in a lot of the audience members that we have here.
• 8:28
  SPEAKER_00: I want to tell you a story about a client.
• 8:30
  SPEAKER_00: We're going to call her Renee.
• 8:31
  SPEAKER_00: Obviously, the details, as always, have been changed to protect identity.
• 8:35
  SPEAKER_00: Now, Renee is 64.
• 8:37
  SPEAKER_00: She recently retired from a long career as a chief marketing officer at a consumer goods company.
• 8:43
  SPEAKER_00: She had been granted company stock of a public company over the course of her career, and she had a significant portion of it that had never been sold.
• 8:51
  SPEAKER_00: The position had grown from roughly$180,000 in original value to just over$1.1 million.
• 8:58
  SPEAKER_00: She had been meaning to address this for years, but let's face it, as a CMO, she was busy and she knew the concentration was a risk.
• 9:05
  SPEAKER_00: But every time she got close, she did the math on the capital gains and threw her hands up and just walked away.
• 9:11
  SPEAKER_00: She came in with two things on her mind.
• 9:13
  SPEAKER_00: The first was that she wanted to diversify the position, and the second was she had been quietly thinking about her university for years.
• 9:20
  SPEAKER_00: She was the first in her family to attend college, and it had genuinely changed the trajectory of her life.
• 9:26
  SPEAKER_00: She had been giving modestly for years, but had always imagined doing so much more and something a lot more meaningful.
• 9:35
  SPEAKER_00: She just couldn't figure out how to do this.
• 9:37
  SPEAKER_00: So when I introduced her to the concept of a charitable remainder trust, she was skeptical at first, wanting to understand all of the pieces because it sounded really complicated and it sounded like something that required a lot of trust.
• 9:49
  SPEAKER_00: Yes, the pun is intended here, and the structure she didn't fully understand yet.
• 9:54
  SPEAKER_00: So we modeled it out.
• 9:55
  SPEAKER_00: We put things side by side of selling the stock outright versus funding a charitable remainder trust.
• 10:01
  SPEAKER_00: If she had sold the stock outright, she would owe approximately$186 in federal capital gains tax.
• 10:08
  SPEAKER_00: We didn't take a look at state in this example.
• 10:10
  SPEAKER_00: That was for a different piece.
• 10:11
  SPEAKER_00: And the net investment income of$920,000 on the gain, she would walk away with roughly a$914,000 check to reinvest after she wrote out some money to the IRS for$186,000.
• 10:25
  SPEAKER_00: But through the CRT, the$1.1 million directly goes into the trust and there is no immediate tax gain.
• 10:32
  SPEAKER_00: She reinvests the full$1.1 million inside the trust structure, and the crut immediately pays her 5.5% annually, and she received a charitable deduction in the year of funding.
• 10:42
  SPEAKER_00: And at the end of her life, a meaningful gift goes to her university scholarship fund, specifically for first generation students like herself.
• 10:51
  SPEAKER_00: She was quiet for a moment and she walked away.
• 10:54
  SPEAKER_00: She walked through the numbers and she said, the stock is just sitting there because I couldn't figure out how to move it without losing a huge piece of it to Uncle Sam.
• 11:02
  SPEAKER_00: I didn't even realize this was something that we could do and use to make meaningful impact.
• 11:07
  SPEAKER_00: Fast forward, Renee funded the CRT six months ago.
• 11:10
  SPEAKER_00: The position is diversified, she has her income stream, and the university has named a scholarship commitment as part of her estate plan.
• 11:19
  SPEAKER_00: And this is something that had been frozen in time for years.
• 11:22
  SPEAKER_00: It is finally moving and is going to benefit so many people of the next generation.
• 11:26
  SPEAKER_00: As you are wrapping up this episode and listening in, there are three actions that I want you to walk away with.
• 11:31
  SPEAKER_00: Action number one is identify any concentrated or highly appreciated asset positions you have.
• 11:37
  SPEAKER_00: Pull up your portfolio, take a look at the positions with the lowest cost basis relative to the current value.
• 11:43
  SPEAKER_00: If you are looking at this, these would be the ones that you are selling and would trigger the largest tax bill.
• 11:48
  SPEAKER_00: Write them down.
• 11:49
  SPEAKER_00: These are your potential CRD candidates.
• 11:52
  SPEAKER_00: You are not committing to anything by identifying them.
• 11:55
  SPEAKER_00: You are simply building the inventory that makes the planning conversation even possible.
• 12:01
  SPEAKER_00: Action number two is have a philanthropic conversation first before getting into the mechanics.
• 12:08
  SPEAKER_00: Before you talk to your financial advisor about a CRT structure or schedule call with us, understand that there are going to be different payout rates.
• 12:16
  SPEAKER_00: Spend some real time thinking about what you actually want to support, which organizations actually matter to you, and what kind of legacy do you want your charitable giving to enable and to create?
• 12:28
  SPEAKER_00: What would be meaningful, not just tax efficient?
• 12:31
  SPEAKER_00: A CRT works best when you have charitable intent that is genuine and specific.
• 12:36
  SPEAKER_00: The tax benefits, they are extraordinary, but they should be in service of something that you actually care about, not the other way around.
• 12:43
  SPEAKER_00: So start there.
• 12:44
  SPEAKER_00: Action number three is ask your advisor specifically whether a CRT belongs in your greater financial plan.
• 12:51
  SPEAKER_00: And here's some good framing to use.
• 12:53
  SPEAKER_00: I have some appreciated positions that I've been hesitant to sell because of the capital gains.
• 12:58
  SPEAKER_00: I also have some charitable goals that I've been meaning to formalize and haven't really gotten a plan for yet.
• 13:04
  SPEAKER_00: Is a charitable remainder trust worth modeling for my situation?
• 13:08
  SPEAKER_00: And that question is going to immediately tell whether your advisor knows this tool well and whether your situation qualifies.
• 13:16
  SPEAKER_00: Now, if they light up, that's a good sign.
• 13:18
  SPEAKER_00: However, if they pivot into something else, that's also useful information and it might not be a tool that they are familiar with.
• 13:26
  SPEAKER_00: A CRT is not the right tool for everyone, but for the woman sitting on significant appreciation with philanthropic goals, who has also meaning to formalize and the desire to generate retirement income from the assets that she is currently holding, by default, this strategy was designed specifically for her and even her family.
• 13:46
  SPEAKER_00: And this audience is very much a part of that group.
• 13:49
  SPEAKER_00: If you want more conversations at this level of sophistication built specifically for women who are managing complex wealth, make sure you are following along and subscribe to our episodes.
• 13:59
  SPEAKER_00: This is exactly what this show was for.
• 14:00
  SPEAKER_00: And we drop new episodes every single week.
• 14:04
  SPEAKER_00: Now, if you speak to your advisor and they aren't familiar with a CRT and you want to have a deeper discussion on what this would look like in your actual portfolio and in your financial plan, make sure you head over to tannisfingroup.com slash contact to apply for a complimentary intro call and just in the comments drop the word CRT to know you listened into this episode and we can have a deeper conversation about what this would look like in your life.
• 14:29
  SPEAKER_00: Thanks for tuning in, and I look forward to seeing you again next week on the Wealth Cafe.