1031 Exchange Vs. CRT

[Senthil Akasham]

Hello BPers,

I own a rental property (single family home) in CA bay area, and I was looking into doing a 1031 exchange with a larger property as a way to upgrade income.  But on second thoughts, after years of being a landlord, I am beginning to get tired of dealing with tenants, the never ending upkeep and of course the "stress" !  (I'm not that old, but handling a rental property still wears down on me !!).  So, when I was looking at other options to avoid paying capital gains tax, I stumbled upon CRT (Charitable Remainder Trust).  If any of you have considered or done this, I would sure love to hear your experiences.  Can CRT be a reliable source of "better and stress-free" income compared to rental income?

Appreciate your thoughts.

Thanks.

[Dave Foster]

@Senthil Akasham, CRTs can be a very powerful tool.  The maximum length for payouts I believe is 20 years so it is a finite payout.  If you're youngish you need to prepare for it to expire before you expire.

The other disadvantage is that there is the "remainder" in the name which implies statutorially that there be value left after your disbursements are finished.  Once you establish the CRT that remainder which would normally have belonged to you and your heirs now belongs to a charity.  Not necessarily a bad thing but...

Most folks in your situation start looking to combine a 1031 tax deferred exchange with a move into fractional passive ownership of something - a DST or TIC product. You get full tax deferral and total passive activity. But you also get income stream for your entire life, and the asset remains yours so it can then pass to your heirs tax free with some good estate planning.