Looking to Squeeze More Than 2% From Your Fixed Investment

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Are you looking for a way to squeeze more than 2% from your fixed income investments? Does your will provide a bequest to a charitable organization? It’s time to consider a charitable remainder annuity trust (CRAT). CRATs provide a way to make a charitable donation during your lifetime while retaining income from those assets. The income is paid at a fixed rate, generally much higher than traditional fixed income investments. The IRS has established minimum and maximum annual CRT distribution amounts, depending on the type of CRT created. CRATs have a 5% minimum distribution rate. The 5% is based on the initial value of trust assets, so that the payout amount remains constant through the life of the CRAT.

Simply put, a CRAT is a legal agreement between you and a charity (or charities) in which you donate assets (cash, securities, or real estate), and in return you receive a fixed income for life. The donor receives a partial tax deductible charitable donation when the CRAT is established. Your current tax deduction is based on the present value of the gift portion that will pass to the charity. The amount of the deduction depends on factors which include your age, the rate of return, and whether payments are guaranteed for one life or joint.

Another benefit of the CRAT is the ability to eliminate capital gains on appreciated property used to fund the trust. The trust can sell the asset without incurring capital gains and then invest the proceeds into other income producing assets. The new investments should provide greater diversity and less risk, and ideally more income than those donated.

You should consult a financial adviser to determine if a CRAT is appropriate for your situation. CRATs are irrevocable and tax implications can be complex. You will want to make sure you maximize the benefits before establishing the trust.

Will Your Money Last Through Retirement?

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have the income I want?

Rodgers & Associates answers questions like these every day.

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2025 Lititz Pike, Lancaster, PA 17601
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