Charitable Remainder Trusts (CRTs) offer a compelling way to support your favorite charities while potentially reducing your current tax liability and providing income for yourself or your beneficiaries. However, the assets used to fund these trusts aren’t always straightforward, and a common question arises regarding the use of restricted stock units (RSUs). Generally, yes, you *can* fund a CRT with restricted stock, but it requires careful planning and understanding of the tax implications, and specific rules govern how it’s handled. Successfully utilizing RSUs in a CRT can be a powerful estate planning tool, allowing you to maximize charitable impact while benefitting from potential tax advantages; however, it is complex and should be done with the guidance of an experienced estate planning attorney like Steve Bliss.
What are the tax implications of donating restricted stock to a CRT?
Donating appreciated restricted stock directly to a CRT allows you to avoid paying capital gains taxes on the appreciation as of the date of the contribution, which is a significant benefit. However, when restricted stock vests and is contributed, it’s taxed as ordinary income at the time of contribution, *not* at the time it vests. This means you’ll receive an income tax deduction for the *fair market value* of the stock on the date of contribution, but that deduction is offset by the ordinary income tax liability associated with the vesting of the RSUs. According to a recent study by Cerulli Associates, approximately 65% of charitable giving comes from individuals, and maximizing tax deductions is a primary motivator for many donors. Furthermore, the income tax deduction is limited to your adjusted gross income (AGI), with any excess carried forward for five years. Therefore, careful planning is essential to ensure you receive the maximum tax benefit and avoid unexpected tax consequences.
How does contributing stock impact the CRT payout?
The value of the contributed stock becomes part of the CRT’s principal, and the CRT’s payout is based on a percentage of that principal, recalculated annually. The IRS requires CRTs to meet certain payout requirements, which are typically a fixed percentage (like 5% or 8%) of the trust’s assets. When contributing stock, especially volatile stock, you need to consider the potential impact on the income stream. A decline in the stock’s value can reduce the CRT’s principal and therefore the payout amount. Conversely, appreciation can increase the payout. It’s crucial to establish a payout rate that balances your income needs with the potential for fluctuations in the stock’s value. Remember, the CRT must distribute a minimum amount each year to maintain its tax-exempt status, so careful monitoring of the trust’s assets is vital.
What happened when Sarah tried to donate her company stock directly?
I recall a client, Sarah, a software engineer, who had accumulated a substantial amount of company stock, including RSUs. She was eager to establish a CRT and donate her stock, thinking it was a straightforward process. Sarah attempted to donate a large block of RSUs directly to a CRT without fully understanding the tax implications. She failed to account for the fact that the RSUs would be taxed as ordinary income when contributed, resulting in a significant tax bill she hadn’t anticipated. This unexpected tax liability significantly reduced the actual amount available for charitable purposes and left her frustrated with the process. The situation was complicated further because the stock was also subject to a lock-up period, meaning she couldn’t immediately contribute all of it, delaying her charitable goals.
How did Michael successfully fund his CRT with company stock?
Then there was Michael, a senior executive who approached Steve Bliss with a similar situation. Michael also held a substantial amount of restricted stock and wanted to fund a CRT for his local hospital. Steve Bliss carefully analyzed Michael’s tax situation and worked with him to develop a strategic plan. They structured the contribution to minimize the immediate tax impact by staggering the contributions of the RSUs over several years. They also collaborated with Michael’s financial advisor to ensure that the contributions aligned with his overall financial goals and risk tolerance. The result was a successful CRT that allowed Michael to support his favorite charity while maximizing his tax benefits. The plan not only met his charitable objectives but also provided a stable income stream for his future. It’s a testament to the power of proactive estate planning and the importance of seeking expert guidance.
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About Steve Bliss at Wildomar Probate Law:
“Wildomar 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 Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
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
- pet trust
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Map To Steve Bliss Law in Temecula:
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
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Feel free to ask Attorney Steve Bliss about: “How do trusts help avoid family disputes?” Or “What are letters testamentary and why are they important?” or “Can a living trust help me avoid probate? and even: “What is an automatic stay and how does it help me?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.