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Charitable Remainder Trusts: A Win-Win Strategy for Donors and Charities

Kim Diemer – Carlson Capital Management
Kim Wurl, CFP®

Integrated Wealth Advisor
952.230.6714
Email Kim

  As a daughter of two perpetual volunteers, my greatest satisfaction is when I can create a positive impact on the lives of others.  

Professional Biography
Kim Wurl serves as an Integrated Wealth Advisor at Carlson Capital Management. As part of the Advisory Team, Kim partners with clients and their families, providing the firm's fully integrated wealth management experience including investment management, retirement modeling, estate and educational planning, and all other aspects of general financial planning and client care. In this role, Kim also connects clients with the firm's specialists for overall portfolio management as well as direct access to expertise in areas such as tax planning and insurance analysis.

Kim holds a Bachelor of Arts degree from Tulane University. Following college, Kim served as an AmeriCorps Fellow in New Orleans, Louisiana. She then went on to earn a Master of Science Degree in Personal Financial Planning from Texas Tech University. Kim holds the Certified Financial Planner™ certification granted through the Certified Financial Planner Board of Standards. Before joining CCM, Kim worked for the Public Defender's Office in New Orleans and as part of the team at a Twin Cities wealth advisory firm.

In her free time, Kim likes to explore Minnesota’s great state parks and enjoys the many running and cross-country ski trails in the Twin Cities. Kim is originally from Grand Junction, Colorado, and now resides in Saint Louis Park with her husband, Joe.

Personal Thoughts
Pull out a $20 from your wallet. You don't have to look at the number to know what denomination it is, with the familiar face of Andrew Jackson on the front. When you look at details of his face, you see a furrowed brow, a slightly dropped chin, unconstrained hair, and eyes looking toward the future. Cold, hard cash seems to soften in the hand when you contemplate the expressions of a man at the center of conflict and hopes of someone who led a nation.

I find that for the vast majority of people, wealth is not about the number on the bill or the size of the number on the statement. Achieving financial success is about the same concerns of the face on that bill. Having financial success represents hopes that are unique to each person -- it could mean quality time with loved ones, a comfortable life, exploration through travel, or joy in generosity.

As a daughter of two perpetual volunteers, my greatest satisfaction is when I can create a positive impact on the lives of others. Through building trusting relationships, I am committed to helping achieve well-being in whatever form that takes for our clients.

Kim Wurl
Kim Wurl, CFP®
Integrated Wealth Advisor
Paige Woods – Carlson Capital Management
Paige Woods, CPA

Senior Tax Advisor and Manager of Tax Services
952.230.6716
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Professional Biography
Paige Woods serves as Senior Tax Advisor and Manager of Tax Services on the Carlson Capital Management team as well as within CCM Tax & Trust Administration, a commonly-held affiliate of Carlson Capital Management. Paige works closely with the Advisory Team to deliver clients fully integrated wealth management services, lending her experience to proactive tax-related planning. As a member of the Tax Team, Paige has responsibility for preparation, review, and completion of individual and trust tax returns and tax projections. She also participates in client meetings and serves as a tax resource for clients. Paige provides service both individually and collaboratively with other advisors to develop customized recommendations. In addition, she is responsible for mentoring new tax colleagues in the firm's approach to integrated wealth management and culture of care.

Paige’s most recent experience includes four-and-a-half years as a tax senior for a Minneapolis CPA firm. In this role, she worked in a variety of capacities providing tax compliance services—preparing and reviewing individual, fiduciary, partnership, and corporate returns. She also reviewed complex gift tax and estate returns and assisted in subsequent tax planning related to estate administration, as well as provided consultative scenario-based tax planning services for clients. Paige also served in a coaching role for early senior-level consultants, providing hands-on technical skills training, mentorship, and professional development. Paige is a Certified Public Accountant (CPA) and a member of the American Institute of Certified Public Accountants.

Paige is a graduate of the University of North Dakota, where she earned her Bachelor of Accountancy, graduating cum laude. Outside of work, she enjoys spending time checking out the foodie and brewery scene in the North Loop neighborhood of Minneapolis with friends and family, especially the pet-friendly places so her bulldog, Cash, can join. Paige grew up in Thief River Falls, Minnesota, and now resides in downtown Minneapolis with her husband, Joey.

Personal Thoughts
“I read of a man who stood to speak at the funeral of a friend. He referred to the dates on her tombstone from the beginning ... to the end. He noted that first came the date of her birth and spoke the following date with tears, but he said what mattered most of all was the dash between those years; for that dash represents all the time she spent alive on earth, and now only those who loved her know what that little line is worth … so when your eulogy is being read with your life’s actions to rehash, would you be proud of the things they say about how you spent your dash?"

The above excerpts from “The Dash,” by Linda Ellis may hit home for each of us. For me, these words are a reminder that life is finite and fleeting.  Each day that I am lucky enough to wake up, I will behave intentionally and purposefully, always asking myself if my next move will get me a small step closer not only to where I ultimately envision myself, but also if that move will help to get those around me closer to their big picture goals.

We each have the same 24 hours every day that we choose what to do with. My colleagues and I choose to spend our hours each work day serving our valued clients by cultivating relationships and learning their unique stories, cohesively making every decision in each client’s best interests, so they can, in turn, spend their hours continuing to pursue their lifetime passions with peace of mind, knowing their thoughtfully developed wealth plan is in trusted hands.

The CCM Tax Team regularly posts articles of interest on tax planning topics which you can find here.

Paige Woods
Paige Woods, CPA
Senior Tax Advisor and Manager of Tax Services

Charitable remainder trusts (CRTs) can create wonderful opportunities for charities, while providing significant benefits to donors and their families. In addition to allowing donors the opportunity to have a substantial impact on a cause they care about, CRTs provide the ability to positively impact an investment portfolio and cash flow while reducing taxes. In fact, with recent tax law changes, a CRT can be used to stretch out the tax deferral of retirement accounts for heirs.

A key differentiator in CCM’s approach to wealth management is the emphasis we place on integration. Not only do we manage our clients’ assets from an investment perspective, we also provide in-depth analysis and advice for their retirement cash flow, long-term tax planning, risk management, estate, and philanthropic needs. With retirement comes new possibilities and decisions about how to deploy the financial assets accumulated to best meet personal, financial, and philanthropic goals for the balance of one’s life. A few years prior to retirement is the point in many of our clients’ lives that we begin to discuss whether a charitable remainder trust is a sound strategy for their goals.

What is a Charitable Remainder Trust? 

A charitable remainder trust (CRT) is created by making an irrevocable gift to a trust. Over a period of time, the trust will distribute income to a beneficiary, typically the person who made the gift to the trust. At the end of the trust term, the remaining assets are distributed to a charity. 

To achieve cash flow, tax, and diversification solutions, the CRT should be thoughtfully designed with the input of your financial advisor, accountant, and attorney. Some terms that require consideration: 

  • Determining which assets are appropriate;
  • The length of term for the income to be distributed to the income beneficiary; and  
  • Amount you intend for charity at the term. 

Sometimes, it’s beneficial to examine a situation where a CRT has yielded win-win benefits. Meet Lauren.

A Case Study: Lauren

Lauren took advantage of an employee stock-purchase plan early in her career. She is recently retired with a large severance package from her company. She has a $3 million portfolio, $1 million of which is in company stock with a basis of $200,000. She needs to use her portfolio for income while she is living. At the end of her life, she plans to give some of her assets to charity. 

Lauren creates a CRT to provide income for the rest of her lifetime, known specifically as a charitable remainder unitrust. When Lauren transfers the stock position to the trust, her advisor sells the position and reinvests the asset into a diversified portfolio of 60% stocks and 40% bonds. Every three months, Lauren receives a distribution from the trust. The diversified portfolio is less risky than the single stock, so when the CEO abruptly leaves the company next year, Lauren’s quarterly distributions aren’t affected.  

When Lauren files her tax return each year, she will pay tax on a portion of the capital gains tax from the sale of the company, based on the amount of income that she received. Outside of the trust, Lauren will pay tax on an $800,000 capital gain when the stock was sold. Inside the trust, the tax liability on the $800,000 capital gain is spread throughout the lifetime term of her trust.  

In the year the stock is transferred to the CRT, Lauren also receives a charitable deduction based on the present value of the future charitable gift. This helps offset the ordinary income tax due on the sizable severance she received.  

At the end of her life, the balance of the trust will be transferred to her charity of choice. If Lauren’s charitable passions change throughout her life, the charitable remainder can be transferred to her donor advised fund. Through the donor advised fund, Lauren can easily alter her charitable beneficiaries. She may ultimately decide that half will go to her local food shelter and half will stay in the donor advised fund to make annual gifts directed by her sons.  

When designing the trust with her advisors, they determined a year-over-year taxable income stream fits with Lauren’s tax-bracket management strategy, while also maximizing the charitable deduction in year one. The CRT was specifically designed for Lauren’s lifetime need, the charitable organizations she loves, and includes her sons in her charitable bequest.   

Who is well suited to consider a CRT as part of their financial plan, and at what point in their life might this be advantageous?   

A CRT involves multiple facets of CCM’s integrated approach and suits different people for different reasons. For example, a prospective retiree may consider a CRT if their asset make-up and retirement plan is comprised of some or all of the following factors to varying degrees: 

  • They’re charitably inclined and would like to incorporate philanthropy into their legacy planning;
  • They’ve accumulated a concentration of appreciated stock holdings that creates undue market risk for their portfolio, and it is in their best interest to immediately diversify;
  • An analysis of their cash flow planning reflects that they need to retain and utilize the value of those holdings to help fund their cash flow needs in retirement;
  • They would benefit from the ability to spread out the tax consequences of unwinding their appreciated positions over a period of time; and 
  • An upfront tax deduction for the trust’s remainder that will go to a charity at the end of the trust term would be advantageous in their current year tax situation.

Why would I consider using a CRT to achieve my philanthropic goals rather than other charitable tools that are available? 

While a CRT is not for everybody, it offers a few unique characteristics that may be more conducive to meeting both your philanthropic and retirement goals than other charitable giving options that exist. 

A key benefit of creating a CRT is the ability to direct the stream of income from the trust each year to a beneficiary to support their cash flow needs over the trust term. The trust term can either be a specified length of time or a lifetime. From a tax perspective, the income that is distributed to the beneficiary each year will be reported on their tax return.   

In general, this annual income is comprised of investment income earned on the trust’s assets as well as a portion of the undistributed capital gains from the initial divestiture of the original assets contributed to the trust. Over time, this structure results in long-term tax deferral of the gain realized when the appreciated stock position was unwound, yielding a positive tax result for the income beneficiary.   

The tax deferral aspect may even be appealing for a prospective client who isn’t necessarily strongly charitably inclined, but desires to retain an income stream from certain appreciated assets and defer the tax bill generated on disposition of those assets over a specified term. In fact, a CRT can be designed to have a larger or smaller income stream over its term and a smaller or larger ending projected charitable remainder depending on the preferences and goals of the grantor. 

Exploring if a CRT is Right for You

A CRT provides donors with a remarkable opportunity to care for themselves and their loved ones and experience the joy of giving. As a complex planning tool, a CRT has significant flexibility for grantors who are comfortable with the irrevocable nature of the trust. However, there are nuances that should not be overlooked to ensure that the short-term and long-term tax and financial planning consequences are appropriate for your situation. The integrated wealth management team at CCM is happy to discuss whether a charitable remainder trust is right for you. Please contact us.


NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional advisor familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.

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Published August 20, 2020 Topics: CCM Women's Initiative, Charitable Remainder Trust (CRT), Philanthropic Planning, Retirement Planning, Tax Planning

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