trading with charitable remainder trust?

Question

If I fund CRT with cash, can I do stock, option trading with the money in CRT? Will the capital gains from trading be tax-exempt?
Thanks.
-z

Answer 1

Here is a great cite on it.

http://www.dartmouth.edu/~gpo/plans/remainder_trust.html

All asset classes are open to you but remember you must meet the minimum distribution requirements, a large loss could be very destructive to the trust and its ability to meet its requirements under the tax code in the future.

Answer 2

Z, the answer is yes and no.

First you need to be familiar with what a CRT is. A charitable remainder trust is an irrevocable trust (one you CAN'T change) that provides for one or two people to receive an annuity from assets contributed to the trust. This annuity can be maintained for a number of years or for the person(s)' lifetime. At the end of the term, what's left in the trust goes to a charity.

Usually people use the CRT to move a highly-appreciated asset (like real estate or closely held stock that has a very low tax cost) and sell it. Then, they reinvest the money and take the annuity from the proceeds of the newly liquid investments inside the CRT. BY doing this, the donor does not pay capital gains taxes on the sale of the asset AND the asset isn't counted as part of his or her estate for estate tax purposes when they die.

However, the CRT usually does not make sense unless (a) you really want to give the money away ultimately to the charity, (b) you have a big estate and need the tax savings from this kind of unusual asset, (c) you want someone to still benefit from the asset after its sold in the CRT and (d) you don't mind the fact that you can never touch the investments inside the CRT (because it's irrevocable). Although the trustee of the CRT (whoever would be named to be trustee) could trade stocks, options or other investments in the CRT, the income tax consequences from the investments partially pass out to the persons who get the annuity interest from the CRT (the amount that goes out depends on how big the annuity is the donor decides to give the beneficiaries).

You're better off doing stocks or options in a plain old garden-variety brokerage account. 15% tax ain't THAT bad is it?