A charitable remainder trust (“CRT”) is typically established as an irrevocable trust with an income stream reserved for the person who creates the trust (“the grantor”). When the income stream terminates, the remaining interest in the trust is donated to a charity. A significant benefit of a CRT is that the grantor is entitled to an income tax deduction calculated on the value of the remainder interest to be distributed to the charity.
But what happens when something has changed in the grantor’s life since they established a CRT and they no longer want or need the income stream? For example, the grantor may be going through a major life event such as a divorce, remarriage, or death of a spouse. Or the grantor may be seeking liquidity or interested in leaving more money to their heirs or simply tired of the administrative hassle and expense of the CRT. One option is for the grantor to sell his or her income stream.
An individual’s income stream in a CRT is a capital asset that can be bought or sold just like any other capital asset such as stocks, bonds or real estate. Since 2000, a substantial private market has developed to buy and sell CRT income interests and reports are that sale activity for CRT income interests has surged in 2020. Generally, the sellers of their income streams are worried about their own mortality due to the COVID-19 virus and a desire to have liquidity on hand during these uncertain times and stock market volatility.
When an income stream is sold, the price is determined by computing the present value of the interest. A surprising number of individuals are seizing the opportunity to adjust their risk profile to the markets by selling their CRT income interests. If you have an income interest from a CRT and are interested in learning more about terminating the interest, please contact PLDO estate and trust attorney Jason S. Palmisano at 561-362-2030 or email [email protected]. Attorney Palmisano will review your situation and forge a plan that can help achieve your goals.
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