How the rich get richer through charity

The Future. The government encourages charitable giving by granting tax breaks, but the ultrarich can use special financial vehicles like CRTs that turn charity into lifelong, tax-exempt income streams. In other words, the rich will continue to look virtuous as they keep getting richer… unless the IRS does something about it.

Give to the poor… and to the rich
One popular vehicle for charity and tax breaks is the charitable remainder trust (CRT).

• CRTs let taxpayers put money into a trust and receive annual payments for life (plus a tax break) because a leftover portion of the fund is donated to charity.
• One type of CRT is a charitable remainder annual trust (CRAT), which determines the annual income of the beneficiary when they’re initially funded.
• The other is a charitable remainder unitrust (CRUT), which allows the fund’s owners to make contributions over time and grow the beneficiary’s annual income — representing a fixed percentage of the fund.

Them’s the breaks
The IRS ensures these funds function as charitable vehicles, so they’re not likely to completely crack down on CRTs like they have on some other ventures. But businesses can liquidate their assets into CRTs, too, and consequently pay reduced capital gains tax, which could be classified as tax evasion if the IRS chose to see it that way.

We guess it pays to be rich.