Charitable Remainder Trust
Private Annuity Trust, Charitable Remainder Trust or 1031-TIC: Which Is Right for You?
By Paula Straub
I've written a lot about how a PAT or a CRT or a 1031-TIC might be right for other people, but how do you decide if one is right for you? There are several things you should think about when trying to choose between these three options:
1) Are you at a place in your life where you want to accrue assets or do you want to distribute them?
If you are still trying to accrue assets, you may want to use a 1031-TIC vehicle to generate income and save capital gains tax because you don't lose control of the asset like you do with a PAT or a CRT. Both a PAT and a CRT allow you to distribute assets out of your control and out of your estate.
How do you know if you should be trying to accrue or distribute assets? If it is possible that your assets will outlive you, then you are probably in a distribution phase of your life. Let me give an extreme example to clarify. I have a friend whose grandfather died at the age of 85. On his death, the man left the entirety of a $20 million estate to his 92-year old wife of almost 60 years. The assets of my friend's grandmother will outlive her. She is in a distribution phase of her life. It is more complicated than being old with lots of money, however. As another example, I know of a widow in her 90s who, though she will be able to leave some sort of legacy to her family, is not really in a position to distribute assets. About 15 years ago, when she and her husband where in their 70s, they had about $2 million in assets. They figured that given their age and the amount of money they had, they should begin to distribute their wealth. So they did. They had to cease distributing assets, however, when the husband died a slow death of cancer in his early 80s. His healthcare in the last year or so of his life ate up a big chunk of the estate. As well, after this death, the widow was unable to care for herself, so moved into an assisted living facility. She has lived in various such facilities for over 10 years now. She has significant healthcare costs, but she is not in such poor health - indeed she has no major diseases - that she won't live another few years. She has had to use almost all her estate to care for herself. She is not in a distribution phase of her life.