A charitable remainder trust offers a unique opportunity to sell appreciated assets without exposing the asset to capital gains or ordinary income taxes. The trust then provides you with an income stream based on what the asset sold for. (An outright sale would expose this same transaction to both capital gains and ordinary income tax and could mean up to a 30 percent difference in total money received.) For many people, this benefit alone provides the incentive to create a charitable remainder trust.

Implemented properly, a charitable remainder trust can save you and your family hundreds of thousands (if not millions) of dollars during your lifetime. Here’s the nuts and bolts of how a charitable remainder trust works:

A charitable remainder trust is a trust from which a fixed percentage (not less than five percent) of the net fair market value of its assets, valued annually, is to be paid at least once a year to one or more people. Such a trust is established for a spesific term or for the life of the donor. When the term expires, or upon the donor's death, the trust becomes the property fo the charity.

In the case of a farm or ranch, the property is donated to the charitable remainder trust and then sold by the trust. The proceeds are professionally invested and the income agreed to (5 percent or more) is paid to the beneficiary - normally the owner of the ranch - for his or her lifetime. Since the ranch is now effectively owned by a charity, there is no tax paid on the sale and the full proceeds are invested. And since a charitable donation has been made, income to the donor is sheltered for up to five years.

The size of the donation is based on the value of the ranch calculated on the anticipated life span of the donor and the percentage paid out each year. Some donors buy enough life insurance to replace the asset in their estate - using the extra income they receive as a result both of being able to invest the entire proceeds of sale and of having the benefit of a charitable donation to shelter some of this income.

There are many financial benefits to using the charitable trust:

• A charitable remainder trust has a unique ability to sell appreciated assets without exposing the asset to the erosion of the capital gains or ordinary income tax. The trust then provides the trustor with an income stream based on what the asset sold for. An outright sale would expose this same transaction to both capital gains and ordinary income tax and could mean up to a 30 percent difference in total money received. For many individuals, this one benefit creates the motivation necessary to establish a charitable remainder trust.

• An individual/family may own a highly appreciated and valuable asset (such as a ranch or farm) that is generating little to no income. This asset may look great on a balance sheet, but may not be paying the bills. The ability to sell a low-income producing asset (that is appreciated and valuable) without the exposure to the above-mentioned taxes enables the charitable trust to generate more income for the recipients.

• Working much the same as a conservation easement, a gift to a charitable
remainder trust provides the donor with an income tax deduction that can be used to offset all forms of income. It is usable in the year of the gift, with a five-year carry over.

• The charitable remainder trust enables the individual/family to lessen the impact of estate taxes. Assets transferred to a charitable remainder trust are generally not subject to estate taxes-taxes that can end up costing your family 55 percent or more of your estate.

• The charitable remainder trust frees you from caring for management-intensive assets like a farm or ranch. At the same time, it supplies professional asset management during the years when you're most likely to both want and need it. Your retirement years should be ones of relaxation and enjoyment. Would you rather be actively managing assets or chasing elk?

• Your heirs also can benefit from this strategy. Using a portion of the cash flow created by the charitable remainder trust to implement what is commonly referred to as a Wealth Replacement Trust, you will be able to provide a wonderful legacy with the charitable trust without disinheriting your family. The cash flow is gifted to an irrevocable trust that uses the money to purchase life insurance.