The Economics of Using a Charitable Remainder Trust to Fund a Retirement Portfolio

Abstract

The article shows that using a CRT to fund a retirement portfolio with a highly appreciated asset can make economic sense, even when a couple (or single person) has no charitable motivation. When the couple uses a CRT to fund their retirement portfolio, the present value of the lifetime retirement income they can expect to receive, the probability that they will receive their target retirement income each year, and the bequest that they can expect to leave to their heirs exceed the results from a directly-funded retirement portfolio. For a couple who has a charitable motivation, but is unable afford to make a charitable contribution, using a CRT can provide the additional benefit of allowing them to do so at no cost to themselves. Furthermore, if they are willing to sacrifice some retirement income and bequest benefits to make or increase a charitable donation, using a CRT can allow the couple to make a charitable contribution that is many times larger than the benefits that they forgo.