Investing in the Future: Financial Planning through a CRUT

March-April 2010

By Earl Ihle, 33°, Grand Cross, Director of Development, and Matthew T. Szramoski, 33°, Associate Director of Development

How would you like a 5%–7% lifetime income, significant tax deductions, and a reduced taxable estate? If this sounds interesting you may want to discuss a Charitable Remainder Unitrust (CRUT) with the Scottish Rite Foundation, Southern Jurisdiction, or the House of the Temple Historic Preservation Foundation, Inc., or a local Scottish Rite Foundation.

A CRUT is an arrangement in which a donor creates a charitable trust to which he contributes property or money, names individuals as beneficiaries of the CRUT’s income during the term of the CRUT, and names a charity or charities as the ultimate beneficiaries of the remaining assets when the CRUT terminates. The assets in the CRUT are valued annually, and it pays a percentage of the fair market value of the assets each year to the donor and/or other individuals named in the CRUT, such as the donor’s children. When the trust matures, the charity receives the remaining principal. By donating appreciated assets to the CRUT, the donor avoids or spreads out any capital gains tax on the donated assets. He also gets an income tax deduction for the fair market value of the CRUT.

How does it work? You can donate cash, stock, bonds, mutual funds, or even real estate. The CRUT sells the property so that you pay no or a reduced amount of capital gains taxes. You get a tax deduction when you place the assets in the CRUT. Note that if you have assets that would cause a loss if sold, you may decide it is more beneficial to sell them yourself, use the loss to offset other taxable income you have, and then donate the balance to the CRUT. You will still receive a tax deduction.

A 70 year old receiving a 5% payout would be eligible for a tax deduction of approximately 50% of the asset value. The entire deduction does not have to be used in the first year and can be carried forward for five years. Once the CRUT is established, the donor or other beneficiaries will receive a regular check. As the CRUT’s assets are revalued annually, the income of 5–7% of the assets will fluctuate up or down with the value of the assets that are managed in the trust. It is hoped the value will grow over the years, leading to higher income.

When the beneficiaries of the CRUT pass on, the remainder of the assets are given to the Scottish Rite charity for which it was specified. You may also recognize more than one charity.

Let’s compare a situation in which one individual is receiving 2% in dividends from his investment portfolio to another individual who has donated the same portfolio and used some of the income from the CRUT to purchase a life insurance policy that he puts in another trust to benefit his heirs (tax free).This separate trust is commonly referred to as a “Wealth Replacement Trust” because the donor or grantor is replacing the assets he gave to the CRUT with the life insurance proceeds held in trust. So, using a CRUT and a Wealth Replacement Trust, the donor can benefit his favorite charity and his heirs.

Please call either Ill. Earl Ihle, 33°, GC, Director of Development at 1–866–448–3773, Ill. Matt Szramoski, 33°, Associate Director of Development at 1–866–748–3227, or Barbara Golden, General Counsel and Campaign Consultant at 202–777–3163 and ask for a proposal to fit your individual situation. There is no obligation.

Because establishing a Charitable Remainder Unitrust involves important legal and tax decisions, it’s essential we work closely with your attorney and CPA. They can help determine whether a CRUT makes sense in your particular situation.